A Few Random Thoughts on MSP Consolidation
Inevitably, when we get word of a merger or acquisition involving a managed service provider there is renewed talk about consolidation in the managed services market. Presidio's purchase of Red Sky Solutions, Intech's acquisition of Kali Systems, and even some some M&A activity in Australia all might lead a casual observer to note that something is happening in the managed services profession.
And, that casual observer might be right, although it might not be what you think.
Managed Services Profession Isn't Consolidating
I've written (and publicly stated) before about the belief that the MSP market is consolidating via these M&A transactions. As before, I remain steadfast in my opinion that there is no MSP consolidation taking place. What is my proof to support this belief?
- Demand for managed services has never been greater. A quick glance at the global IT services spending data from firms like Gartner support this claim.
- More MSPs are entering the profession every day. While it is difficult to say what the trend line is, there is no shortage of new MSPs beginning their practices.
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.