MSP Acquisition: Cavalier Buys Disaster Recovery Specialist

The lines between managed service providers, telecom companies and hosting providers continue to blur. The latest example involves Cavalier — a telecommunications specialist — acquiring NET Telcos, which specializes in data centers, managed services and business continuity. Here are some quick details about the deal.

Cavalier, headquartered in Virginia, has a fiber optic network that services businesses, customers and government customers. NET Telcos, based in Richmond, Va., specializes in colocation and such managed services as server virtualization, data backups, firewalls and e-mail hosting. Financial terms of the detail were not disclosed. Also, I’m not familiar with the overall financial health of Cavalier and NET Telcos.

According to a prepared statement from Cavalier CEO Danny Bottoms:

“As we grow our mid-market commercial customer base, we see significant demand from corporate IT departments to reduce operating expenses and avoid large capital investments. At the same time, customers face significant requirements for uninterruptable service availability, backup and archiving. We will address these needs by combining a managed services product set from NET Telcos with affordable, reliable connectivity using our extensive fiber network.”

Business continuity, online backup and managed storage remain key areas of opportunity for MSPs. Roughly 64 percent of MSPs offer some sort of managed storage solution to their customers, according to our third-annual MSPmentor 100 survey (complete results to be announced February 10, 2010).

No doubt, M&A activity is accelerating across the MSP, solution provider and service provider markets. Recent deals include:

• World Wide Technology acquiring Performance Technology Group.
• Two VAR500 companies merged in early January.
• FusionStorm, an MSPmentor 100 company, acquired CentriServ in early January.
• And in the software market, ConnectWise has announced plans to launch ConnectWise Capital, a $20 million fund that will incubate a range of channel-focused technology companies that serve MSPs and solutions providers.

Ironically, the M&A and financial activity suggests (A) continued grow in the MSP space amid (B) market consolidation and maturation. Ultimately, I think fewer players are going to command more and more of the managed services market. There will always be small and midsize MSPs. But I’m curious to see if larger MSPs can compete and cooperate with RackSpace and other managed hosting providers.