It’s MSP season again in the private equity mid-market. What’s behind the wave of deals?

A great convergence is underway; managed services for every technology domain, previously siloed to a greater or lesser extent, are becoming part of a single IT stack. This encompasses connectivity, communications, network, service desk, modern workplace, private cloud, public cloud, security, data management, data analytics and devops. Managed Service Providers (MSPs) are re-evaluating their service offering, moving into higher growth or more ‘future proof’ segments, and plugging gaps in their service portfolio – be that organically and through M&A – to be a ‘one stop shop’ for their target customers.

Non-recurring professional services are also an important part of the mix. Project work has a halo effect with the MSP businesses; projects can be originated from MSP engagements, and in turn feed Monthly Recurring Revenue. MSPs are going beyond simple change projects, betting that they can cross-sell increasingly bespoke transformation projects; including business application implementation/support and low code application development (more often than not based on Microsoft Dynamics / Power Suite – other ISV ecosystems are available!). See my recent article on low code’s wider potential, Low code; a hyped technology which is already delivering for the mid-market.

MSPs are a natural PE asset – a vast, fragmented, and growing market, a strong recurring revenue base, and sticky customers who are receptive to cross-sell. There is seemingly endless investor appetite (from PE and PE backed trade) and strong valuations. Early mover MSP investments are hitting their exit windows, other star performers are being bought forward to benefit from the active market, and founder owned businesses continue to come to market.

Armstrong has developed a framework of MSP competencies to help PE investors and management teams sort the wheat from the chaff, and add value to your MSP in a considered, strategic way. Please contact me on [email protected] and I’ll be happy to talk you through it.

Mike Callow, Partner

+44 7894 594500
[email protected]

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