The MSP M&A remained at a strong pace in May 2022, although we noticed a slight slowdown at the end of the month. We wonder if rising interest rates, inflation, and anxieties on Wall Street are starting to affect at least some deal flow.
In May of 2022, ChannelE2E monitored 86 technology mergers and acquisitions. The total number of M&A deals so far in 2022 climbed to 513 buyouts by the end of May.
Analyze the data, and here are 10 things to know about those M&A deals – specifically they relate to MSPs (managed service providers), MSSPs (managed security service providers), cybersecurity firms and IT consulting firms.
1. MSP Mergers and Acquisitions: Approximately 110 deals (about 21%) from January to May 2022 relied heavily on MSPs.
2. Private Equity: About 153 M&A deals-or 30% of transactions-involve private equity firms. In some cases, private equity has acquired a “platform” MSP while preparing additional tuck-in purchases. In other cases, PE firms have quietly worked behind the scenes to put more MSPs into their current investments on the platform.
3. MSSP M&A Deals: Twenty -two of the deals involved the acquisition of MSSP. Major private equity and consumer finance markets include:
4. Cybersecurity M&A: A total of 110 of the deals (21 percent) involved cybersecurity businesses. The latest buyers include Broadcom, The Alten Group, Valeo Networks and Hornet Security.
5. IT Consulting M&A: Seventy -five of the M&A deals from January to May 2022 involved IT consulting firms.
6. Government Solutions Provider M&A: Twenty -two of the deals involve IT service providers, solutions providers, MSPs and consultancies in the government sector.
7. ServiceNow Partner M&A: Six of the deals involve ServiceNow partners – including the purchase of TELUS Fully Managed. Moreover, we have seen 58 deals with ServiceNow’s M&A partners since 2019 and expect activity to remain stable amid a shortage of ServiceNow technicians.
8. Technology M&A Values: Only 15 of the 513 deals we track so far have expressed deal valuation. Sure, we’ve heard about MSPs that are worth more than 10X annual EBITDA. But remember: Many M&A deals involve a more conservative valuation. Here are some more of what we see.
9. Year-to-Date M&A Surges: Overall, we tracked 513 technology M&A deals in January to May 2022, up 78% from the corresponding January-May period in 2021.
Among the reasons for the 2022 surge in M&A activity (year-to-date), we suspect:
- More companies completed deals in December 2021 in a career to avoid potential tax increases on capital gains in 2022. Deals in December 2021 were announced in January 2022 and early February 2022.
- The numbers in early 2021, compared to the numbers in early 2022, are likely to be a bit soft as MSPs and technology companies in early 2021 are still navigating rising COVID issues. -19 which stopped some M&A discussions.
- Private equity firms continue to lean on the MSP market (and reliably recurring earnings) because valuations are lower than SaaS firms.
- Demographics suggest that a key market segment is “aging” business ownership. Rewind to 2015 and early 2016, and ChannelE2E predicts that M&A activity will peak in 2022 based solely on owner demographics.
- And finally, 2022 M&A figures (year to date) are likely to grow as ChannelE2E is increasingly the source that sends us information on deal flow. (Big-time thanks to all those resources.)
10. What M&A Deal Did We Miss ?: Did our global M&A list fail to track a particular merger or acquisition from January to May 2022 – specifically anything related to the MSP or MSSP? Drop me a line and let me know: [email protected].