Mergers & Acquisitions Archives - Kaseya

Navigating the Future: Insights From the M&A Symposium at Kaseya Connect Global

Kaseya — Tue, 30 Apr 2024 22:31:03 +0000

The technology industry continually evolves, and managed service providers (MSPs) are often at the forefront of this transformation. We brought MSPs, investors and other professionals in the mergers and acquisitions (M&A) space together for an exciting pre-day event at Kaseya Connect Global 2024. This dedicated symposium aimed to unpack current trends, challenges and strategies in M&A was tailor-made for MSPs, offering valuable insights into the complexities of acquisitions, mergers and sales in today’s MSP landscape.

Key Themes and Discussions

The M&A Symposium kicked off with an address by Kaseya Chief Executive Officer Fred Voccola outlining the climate in the M&A space as well as his insights into the current market and the challenges that he believes lie ahead. Other experts also offered their insight throughout the day’s sessions.

Understanding Market Dynamics

The symposium opened with a comprehensive analysis of the current market dynamics and a look at how those dynamics may impact MSPs looking to sell their business this year. Many aggregators are looking at a tough financial landscape and growing more cautious in their attitudes toward M&A. Also, a slowdown in the macro-economic climate is translating into delays in aggregators launching new projects. Buyers and sellers were urged to remember that M&A is a numbers game, and they must ensure that they’re calculating their value accurately.

Make due diligence a priority

A central theme of the day was the critical role of strategic fit and due diligence in a successful merger or acquisition. Honest financial assessments are critical, and everyone involved in a deal must do their homework to ensure that the financial picture they have is accurate. Buyers and sellers also must ensure that potential deals align strategically with their long-term goals. Real-life examples illustrated some of the common pitfalls to avoid and smart moves buyers and sellers can make to close a deal that benefits both parties.

“There have been a couple of companies that we looked at where there was blatant fraud, with fake bank accounts and manufactured statements,” cautioned Voccola.

Navigating financial challenges in a tight market

Another focal point was the current financial landscape, which can significantly impact M&A activities. Attendees learned that aggregators or large MSPs have typically been doing an average of five deals per year. However, half of those buyers told Kaseya that they will be slowing down or pausing M&A in the next six to 12 months. This is a good illustration of the precariousness of the market. The M&A slowdown can be attributed to high interest rates, too much competition and challenges in finding the right deals.

Post-merger integration and culture

Post-merger integration was highlighted as a make-or-break factor in the success of M&A deals. Having navigated a successful but extremely complex and challenging transition with Datto, Kaseya’s shared their experiences in taming the rumor mill, managing team integrations and aligning corporate cultures. Hearing these real-life examples and cautionary tales provided attendees with tools to manage change effectively, including how staff from different entities can work together harmoniously and drive the combined entity toward shared goals.

Future outlook and opportunities

The symposium concluded with a forward-looking discussion on the future of M&A in the MSP sector. As technology continues to evolve, MSPs face new challenges and opportunities. The panelists encouraged attendees to think beyond traditional models and consider how innovations like cloud computing, machine learning and IoT could influence future M&A strategies.

The M&A symposium at Kaseya Connect Global 2024 was not just an opportunity to learn about current trends but also a forum for forging new connections and envisioning the future of the MSP industry. As MSPs continue to navigate the intricate landscape of mergers and acquisitions, the knowledge gained from this event is sure to play a role in shaping strategies for growth and innovation.

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To Merge or Not to Merge: The Future of MSPs

Guest Author — Tue, 30 Nov 2021 14:06:00 +0000

Sponsored Blog Post from ReachOut Technology

Over the past few years, merger and acquisition activity has skyrocketed in the IT channel. Experts forecast that the managed services market will hit $329.1 billion in 2025 within a huge growth industry, while simultaneously consolidating. In 2019, two-thirds or more of MSPs considered being acquired by a bigger agency, with 20% of larger agencies thinking about buying an MSP. Continuing COVID-19 pressures have kept these trends on course. Even if the prediction falls shy at 10%, small-to-midsize MSPs should be open to opportunity.

What does this unprecedented level of activity mean for your MSP business?

According to a recent IT Glue Survey, 53% of the 501 companies on the 2018 Channel Futures MSP 501 list considered merging or being acquired within two years. There are several key reasons for this M&A activity inside of the MSP space.

Baby Boomers are bowing out

Channel e2e reported thousands of baby boomer owners are looking to exit their businesses to capture the net worth from the companies they built.

Customers calling for a ‘one-stop shop’

It can’t be denied that managed information security (IS) services and IT services are being combined. It makes more sense to the consumer when they are looking for a complete service. If you do not provide all the services customers request, you risk customers leaving for one-stop-shop competitors.

Falling behind the IT trends

When focused on growth, many businesses stop focusing on innovation, new technologies and advanced training of teams. Customers continue to grow their own businesses and want the newest solutions. Skills and resources can often fall behind or be out of reach due to limited capital.

Coming up short on cash

Delivering more service coverage and scaling your MSP business always equals bigger (and bigger) cash needs.

Remote, remote, remote

MSP acquisition may be on a meteoric rise because the world no longer demands that businesses stay brick and mortar or within the same zip code. MSPs that band together can now easily take the market share in any region.

Boost ‘business’ skills

Apart from enabling you to bring in the skills you need to keep abreast of new technologies and customer expectations, weaknesses in areas such as process and methodology, compliance or even sales and marketing, could be remedied by merging with or acquiring an MSP with complementary skills.

Investors imagine MSPs and MSSPs as great opportunities

The majority of MSPs are “lean” so growth prospects are good – especially when they have strong relationships with their customers. Channel Futures reports that VCs are scooping up MSPs and OEMs to create powerhouse entities. Valuations are high and capital fairly cheap, making IT services, technology companies and MSPs favored amongst venture capitalists.

Can small-to-midsize MSPs survive?

At ReachOut here are some facts that shed light on what the future has in store for MSPs:

Demand for managed services has never been greater
More MSPs are entering the profession every day
Baby boomers want out, but at the best valuation
Geography is no longer a hindrance to collaboration

The other definite is that while investors are swimming around small-to-midsize MSPs like sharks in the water, they are looking for a particular size. For example, when ReachOut Technology brings an MSP under the family umbrella, we look for specifics like:

Minimum of three employees
$1 million to $5 million in annual revenue
50% of contracts must be monthly recurring revenue

With PE firms seeking out MSPs typically with a minimum of $15 million in annual recurring revenue and double-digit margins, it narrows down the opportunities considerably.

Is the ‘Super MSP’ inevitable?

MSP consolidation is actively happening and is a big part of the IT space’s future. That question has been answered. What remains to be answered is:

Who will be left standing?
How will customer trends impact mergers?
Will the “Super MSP” come out both bigger and better?

“Big” may be better and bring benefits such as access to more resources, a wider range of skills and experience – and access to capital, for example.

However, “small can be beautiful” and when applied to MSPs, it can mean greater agility, a closer connection to customers and the ability to serve niche markets cost-effectively.

At ReachOut, we are focused on blending both scenarios with an aim to acquire 75 MSPs and bring them under the family umbrella with exceptional training and support so that customers only see the positive of the mergers. The key thing is to keep our customers happy.

There’s no one-size-fits-all solution when it comes to acquiring the new skills needed. Many are developed in-house, but we cannot ignore the new services expected by our customers. Under the ReachOut umbrella, we are passionate about advancing our skills and staying ahead of the ever-changing landscape.

Calculate your MSPs value here and consider living the life of your dreams.

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Mergers and Acquisitions: Pros and Cons for MSPs

John Emmitt — Wed, 21 Apr 2021 15:51:26 +0000

Until the pandemic hit businesses in full force in 2020, high levels of mergers and acquisitions (M&A) activity were seen in the MSP industry. Post COVID-19, the state of MSP M&A is yet to be decided. But, there are strong indications that M&A activity is ramping up again. In this blog, we delve deeper into how mergers and acquisitions can benefit an MSP and what strategies MSPs are adopting in the new normal.

What Is an M&A Strategy?

A merger and acquisition strategy can encompass a number of key goals, such as a company looking to expand into a new geographic territory, or to acquire a new technology that provides a competitive edge, or simply to acquire talent for the business. Mergers between two companies or the acquisition of a company by another company are pursued as a way of seeking a solution to a business problem, to gain expertise, to increase market share and value, and/or to acquire intellectual property.

Why Is M&A Important?

M&A plays a different role for the acquirer and the acquired companies. When companies merge, they intend to play off each other’s strengths in an attempt to rise in the ranks above other competitors. In the case of one company acquiring another one, the acquiring company may be looking to increase its sales margins by spreading costs out over a larger customer base, for example. M&A can be a faster route to business growth then organic growth. And with size comes some economies of scale.

What Are the Major Advantages and Disadvantages of Mergers and Acquisitions?

Mergers and acquisitions, when done right, can be beneficial to all the companies involved and when done wrong has its own risks.

Advantages of Successful M&A

Economies of Scale: As mentioned above, the merger of two or more companies can provide economies of scale. This can include higher gross margins as costs are spread across a larger revenue base. It can also provide increased access to capital and stronger bargaining power when negotiating with vendors.

Cost-Effective Way to Fuel Expansion: When two businesses come together, their resources are combined, adding value to the business without any additional training costs required. The new entity has essentially expanded its portfolio with acquired customers, employees, skills and products within a certain defined budget.

Economies of Scope – Creation of Multiple Growth Opportunities: M&A provides access to a combined set of clients, assets and human capital. MSPs can use the M&A process to generate business growth such as expanding into a new market. That can take a long time when done organically; M&A will significantly accelerate the process.

Diversification of Risk: By having a larger number of revenue streams, the merged companies can spread out business risk accordingly. When one source of revenue drops, others are available to make up the difference, or at least, to minimize the financial impact.

Risks of Poorly Executed M&A

Lack of Having a Complete Picture: Lack of proper planning and alignment of goals of the merged companies can generate a host of issues following a merger or an acquisition. The companies should have a strategy planned prior to the merger to ensure smooth business operations and continuity.

Employee Distress Following the Merger: An M&A process often consolidates the positions of employees in the company, which might cause some distress to them. Companies can lose experienced and skilled staff if the employees don’t feel valued and secure. Companies must take the necessary measures to keep their employees feeling good about their roles in the new organization.

Poor Business Integration and Execution: Poorly executed managed services in the combined entity will affect client retention, leading to loss of revenue. Hence, all integration and execution of MSP services must be planned meticulously to avoid customer churn.

MSP Mergers and Acquisitions

MSP M&A activity slowed down due to the pandemic. This comes as no surprise, as businesses were still working toward finding their footing during these uncertain times.

Kaseya’s 2021 Global MSP Benchmark Survey Report notes that 26% of the MSPs said they are looking to acquire other MSPs within the next 24 to 36 months, 8% said they are investigating selling their MSPs within the same period, while another 66% have no plans to acquire or sell their MSP.

MSPs on M&A Strategy – 2021 Global MSP Benchmark Survey Report

As we exit the COVID era, in this new normal, MSPs are regrouping and seem to be weighing their options of merging or staying independent.

Incidentally, MSPs looking to acquire other MSPs have had higher growth in monthly recurring revenue (MRR) over the past three years. This indicates that stronger MSPs are in a better position to leverage M&A activity for further growth of their business.

You can learn more about M&A operational guidelines and having a clear merger or exit plan by watching our on-demand webinar The M&A Operational Playbook for MSPs with guest speaker Gary Pica, President of TruMethods, and a pioneer in the managed services field.

The webinar covers crucial topics on M&A such as how businesses can prepare themselves for a higher valuation and the many common mistakes you should avoid for a successful merger. Watch the webinar here.

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