Juan Fernandez, VP of Managed IT Services, ImageNet Consulting

Written by Allison Francis
April 22, 2021

Private equity has taken notice!

With high margin and profitability becoming more prevalent in the MSP space, its hard not to see that there is opportunity for investment and profitability to be had. With so many changes happening and as-a-service becoming more commonplace, the days of transaction low margin sales are gone, and the new era of high margin, long-term engagements is on the rise. This makes for an investor’s dream! When normal investments’ rate of return is 5%-8% on average, it’s hard to not see the attractive 10-20+% margins available in the Mmanaged services space.
The icing on the cake makes it a very appetizing consideration. You are seeing more mature MSPs able to truly maximize on the customer value.

Some of the attractive aspects are:

Strong recurring revenue
Lengthy contract terms (36 months+)
High-value services
Longstanding customers
Customer/vertical diversification
Fragmentation in the market place, resulting in opportunity for growth through acquisition
The total addressable market is large.

“There have been several dozen PE investments in the managed services space. For most, it has helped propel those MSPs to new heights and also appears to have been of benefit. One noticeable effect is that it has made all other MSPs aware of acquisition, and the need to have your company in good financial/operational shape.

“As a whole, I think it has been good for the MSP community. It is very clear that managed services is becoming the place to go for small-to-medium-size businesses and the need is rising by the day. The good news for the MSP community is that well-run/profitable IT companies have a higher value and are being sought after. For those that are looking for an exit, there are now options that didn’t exist a few years ago.”

Tags:

Allison Francis

Allison Francis is a writer, public relations and marketing communications professional with experience working with clients in industries such as business technology, telecommunications, health care, education, the trade show and meetings industry, travel/tourism, hospitality, consumer packaged goods and food/beverage. She specializes in working with B2B technology companies involved in hyperconverged infrastructure, managed IT services, business process outsourcing, cloud management and customer experience technologies. Allison holds a bachelor's degree in public relations and marketing from Drake University. An Iowa native, she resides in Denver, Colorado.