Telcos, ILECS Target MSPs for Acquisition

Multiple telecom companies and ILECs (incumbent local carrier exchange) are pursuing managed services providers (MSPs) for potential acquisition, according to multiple MSPs that have received unsolicited takeover inquiries in the past three months. Some deals are getting done — including Hargray Communications buying iTech and WesTel buying Heartland Technology Solutions. MSPmentor is aware of three other potential telecom-MSP deals that are in the negotiating stages.

No doubt, the telecom and IP worlds have been converging for several years. Much of the early convergence involved corporate data centers and internal PBXs converging toward corporate VoIP. Gradually, telecom companies have introduced their own VoIP services to help supplement struggling or contracting local telephone service revenues. The next chapter of the story likely involves telecom companies remotely managing cloud and on-premises equipment for customers.

That’s where MSPs enter the picture. According to multiple sources, at least half-a-dozen telecom and ILEC businesses have been cold-calling MSPs using a range of tactics. The moves include scouring the MSPmentor 100 and 250 lists; dialing into known ConnectWise User Group and HTG Peer Group members; and calling on Tigerpaw Software customers — which includes a mix of telecom and MSP partners.

“From the sound of it the telcos are willing to pay a premium because they are so new to managed services,” said one MSPmentor 100 company that received three calls over the past three months. “The telcos throw off a lot of cash so they can afford to make targeted purchases. They seem enamored with MSPs because MSPs provide a link between on-premises managed services and cloud services.”

Still, the MSP executive — a CEO — said he rejected potential sales inquiries from telcos because his own business continues to outperform expectations while telcos are not known as the fastest-moving companies in the SMB market.

Even so, MSPmentor is tracking apparent negotiations between three other ILECs and MSPs at the current time, though sources close to each negotiating table say the deals may not materialize because of a range of challenges including:

• Overlapping Telco and MSP services;
• Incompatible exit strategies for the MSP executives and the inquiring Telcos;
• Earn-out considerations that don’t offer enough money up front at the time of the deal’s closing; and
• Concern that SMB customers may not trust certain PC- and server-centric services to Telcos.

Either way we’re in close contact with the sources to see how this all plays out.