What The Experts Have to Say

Van Gorden acknowledges there is a disconnect between what’s going on in the public markets to tech companies and the private MSP market but says there are some solid reasons for this.

“The companies that have really gotten beaten up in the public market for the most part are companies that are not making any money, they don’t have sufficient cash flow. We have gone from a world where we gave a lot of value to companies that could grow fast using capital, but now we’ve gone to a world where we value companies that can grow without using any capital.”

“MSPs specifically have pretty good margins, they’re pretty profitable and have pretty good cash flow,” he said. “So that protects them. I think some people are waiting for private valuations to decline to correspond to where the public markets are, but we just haven’t seen it.”

Fear was also confident that MSPs would avoid anything similar to the crash in the shares of publicly traded tech companies, although there may be some adjustments in the private market.

“The secular tailwinds and strong fundamentals for MSPs indicate this is a place where deals should be able to get done and that bid-ask spreads should be reasonable,” Fear said. “So we would expect deals to continue, maybe not at the pace of 2021, but at a reasonable pace.”

Joe Rondinelli, principal at Frontenac, which is the majority owner of one of the most successful MSPs in the U.S., had this to say: “The thing to watch more [than demand for platform investments] is how interest rate hikes and inflation impact underlying demand from an MSP’s client base, versus the corporate finance of having greater interest expense in a buyout. The former will impact valuation more than the latter.”