MSP M&A activity continued to be strong in December and in January. Private equity is powering some of those transactions, but it also has to do with (1) scale; (2) talent; and (3) customer acquisition. The largest expense at an MSP is labor. The business needs to have enough Managed IT customers to keep the technicians, engineers, and other techies busy and billing. Not all MSPs have a strong sales force that can efficiently add and retain customers. In some cases, it might be easier to buy customers via acquisition. The final piece is that talent is scarce, so acquiring a business for customers and talent is ideal!
This sector (MSP) will continue to experience M&A in 2025.
Vendors will have a heavy M&A year. Why? Many MSP vendors, cybersecurity providers and aggregators are PE owned. And like milk in the back of the bachelor’s fridge is expired.
CIVEN sold NITEL + 2 acquisitions to Comcast in just 3 years. All 6,600 business accounts buying DIA, NaaS and cybersec. No voice. Not very messy. A clean transaction in a tight window for the PE group.
Why do so many other providers not have any buyers? They aren’t clean.
BCM One bought a lot of Managed SIP trunking, Skyswitch & Coredial (white-label UCaaS), and Arena One (BSFT) – that is a lot of disparate VoIP. On top of that, BCM One has a small brokerage (TSB) and a Verizon reseller. That isn’t clean. It is not packaged to be re-sold.
Next you have TPX, a one time darling of the channel. Then Siris Capital Group, who has a bad track record in telecom (PGI), bought TPX in 2020. TPX was a once good reseller/aggregator, that shifted to focus on UCaaS with its Broadsoft/Webex product and Cyber-Security from an MSP acquisition that gave them a SOC and NOC to go with a data center from TelePacific days. The networking business was downplayed, so the channel looked elsewhere for transit and transport, the mainstay of channel partners. Not many buyers for Broadsoft-based UCaaS. I don’t know how outstanding they are as an MSP or MSSP, but the UCaaS turns off buyers. It would have to roll into another aggregator.
Morgan Stanley bought a stake in Fusion when they went bankrupt in 2020. I don’t know what Fusion is good at or proficient in. And if I don’t know, likely suitable buyers don’t either. Fusion would need to hire Q Advisors or another banker/broker to find a suitable buyer.
Grain Management owns many telecom investments. 123Net, 55H data center, Summit Broadband, Light River, a bunch of ILECs (Hunter, Ritter, and Great Plains), WANRack and Spectrotel. They have really straightened out Spectrotel. Grain is a long-haul investor, VC not PE. For Spectrotel, with its portfolio of Internet connectivity, voice, cloud communications and managed services, I just don’t see what an exit looks like. Who is the buyer? Cox? Spectrum? Lumen? I just don’t know.
The rumor mill has 8×8 being acquired. My question by who? The market cap today is $350M with $369M in debt. Can you see the problem?
There are a lot of vendors that are for sale, but the problem is: Who is the Buyer? Usually a PE firm can re-package an investment and sell it upstream, but in this case I don’t see that happening.
In the distro/TSD space: In 2021, Platinum Equity paid $7.2B for Ingram Micro. In October of 2024, the IPO was valued at $5B. The 18M shares of stock were priced at $20, which it still sits at. The company has $1B in debt. This is a global distributor with a cloud marketplace and a TSB. What does that say to investors in other TSBs???
Telarus used to say that Deloitte or Accenture would acquire a TSB. I have always doubted that. Even with $500M in commissions taken in, that isn’t enough EBITDA to interest a company with $67B in annual income. That is 0.7% of the revenue — and they only keep like 10% of that!
I think Telarus and Avant will merge by the end of the year. Or Telarus and Bluewave since Columbia is an investor in both.
On the Trusted Advisor/Agency front, there will be some M&A, but really we will see a bunch of exits/retirees return to the Advisor world. Why? The deals made to sell their agency did not pan out – and we would know this but due to non-disparagement clauses in these contracts, we never hear it. Many who sold early expecting a lotto payout have become dismayed. The super exit has not happened — and is looking less likely every day. TNCI, Part Deux.
If you are selling your business, hire an attorney or a banker or an advisor. Only a fool sells his business without advice.