A Few Random Thoughts on MSP Consolidation

And now for the bad news

If you agree with me so far that we are not in a period of consolidation, then what, you may ask, is the reasoning behind the recent M&A activity we are seeing.

• This is normal M&A activity no different from previous years.
• These transactions represent owner/investor transitions
• These transactions represent expansion into new geographic markets
• These transactions represent expansion into new service markets

Roll Up Hysteria

Now, assuming you agree with me that a) we are not in a period of consolidation and b) that this M&A activity is perfectly normal for our profession, what is it that explains the almost frenzied discussions about market shrinkage and consolidation?

There are people (and groups) who believe that MSP roll ups are not only viable, but also practical and proven methods for growth in managed services. You can click here to read my opinions about MSP roll ups (and no, I don't mean the fruit candy).

One of the many problems with M&A roll ups (in managed services and in many other industries) is that you must have a willing seller's market in order to make your roll up strategy work. This is one of the biggest gaps in logic when it comes to the roll up strategies I hear. I am approached regularly by both MSP operators and investors claiming they are on a roll up execution strategy and they need help. Well, one of the reasons they need help is in identifying MSPs to buy. This is a pretty big item to be missing in your corporate growth strategy!

So, in lieu of a viable seller's market, I believe these advocates for managed services consolidation must create a false sense of market consolidation. If this sounds too conspiratorial to believe, ask yourself this next question honestly: name one successful MSP consolidation strategy which has worked!

Without predicting the future, let's just say that we can expect normal M&A activity for the foreseeable future. But, whatever M&A activity we do see will be historically consistent and serving only the basic purposes outlined above. Everything else is just smoke.