Managed Services Providers: 2022 M&A Trends for Sellers – Part 1

Read the original article here.

 

Thesis: The managed services market is one of the fastest growing segments of the IT sector. The COVID pandemic and the ensuing need for remote workers have undoubtedly brought about the largest opportunities in this field. However, as the pandemic fades from the daily headlines, the billion-dollar question is: What will drive this industry moving forward, and where is it trending? We address some of the issues in this three-part series for managed services providers.

 

The market drivers for Managed Services Providers

As the name implies, managed services are typically an activity performed by an external provider, and cover a wide range of IT and telecommunications areas. The administration of IT systems, the remote monitoring, and management of servers, network monitoring, and other support services are the most common examples.

 

The main activity of MSP (Managed Service Provider) companies is to continuously monitor a specific area and report, troubleshoot, and ensure that any failures are avoided in the future.

 

The size of the worldwide managed services market is anticipated to be worth $354.8 billion by 2026. This is two to three percentage points higher than the overall high growth rate of the IT market, which is driven by the changes induced by the pandemic. If there is one market segment that can confidently be said to be one of the winners of the pandemic (along with home delivery), it is managed services.

 

Because work could not be stopped during the quarantine periods, companies that had previously only allowed certain workers or had closed themselves off to remote work altogether have allowed it on a broad scale for white-collar employees. Working from home has created a massive need to strengthen legacy IT capabilities and processes, particularly data security.

What are the key MSP trends for 2022?

  • Predictive technologies based on AI and machine learning: Prediction is especially important in cybersecurity because the successful MSPs of the future will not be countering current attacks, but will be completed ahead of them. It’s no coincidence that cybersecurity pioneer Wiz.io has become the fastest growing company of 2022, attracting a total of $600 million in funding so far.
  • Capacity expansion will continue: Observations show that the pandemic has not triggered but rather accelerated the processes already in place. The spread of remote working, as one of the most operational changes in companies with large numbers of modern white-collar workers, is unstoppable and will continue to grow after COVID. According to a recent study, 77% of respondents intend to work remotely at least three days each week, confirming that the trend toward remote work is likely to continue. There is a higher possibility that some occupations, whose remote working levels were already high before the epidemic, would persist.
  • Market consolidation through M&A: The MSP market, which mainly consists of thousands of smaller mid-market firms, and many solo entrepreneurs (besides a few multinational corporations), is expected to continue growing for the foreseeable future. This also projects an increase in M&A activities and an increase in available capital not only in the form of investments but also in acquisitions in this segment.

Market challenges

The market, while bullish, is characterized by cautious optimism. The biggest challenge at the moment is not innovation or the economic environment, but the lack of a talent. Although remote working has given the IT sector an additional boost, some estimates suggest the overall market has a deficit of several million skilled workers.

 

Cybersecurity Ventures analyzed the industry for eight years, during which time the number of open positions increased by 350%, from one million in 2013 to 3.5 million in 2021. While the cybersecurity skill gap has leveled off slightly, the same amount of vacancies can be expected through 2025.

 

In part two of our series, we will look at M&A trends in the MSP market. In the meantime, let us know if you are contemplating the sale of your MSP/IT consultancy. ITX has completed 200+ IT-enabled transactions in more than 20 countries during the last 25 years.

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