In a growing market like managed services, which has typically been the domain of a large number of smaller organizations, mergers and acquisitions are bound to be omnipresent.
Sometimes they’re the result of an aging owner of “serial entrepreneur” looking to move on to whatever comes next. Sometimes they’re a way for peers with similar strategies to gain scale, or for peers in different markets to share best practices and expenses across a combined entity.
But increasingly, there’s a trend towards players acquiring their way into the managed services game. A couple of instances over the last 90 days illustrate the trend.
In early November, Canada’s largest solution provider, Softchoice Corp., announced that it was purchasing Unis Lumin, a Toronto-area solution provider that is one of Cisco’s most oft-heralded partners in Canada. One of the biggest drivers behind the deal: While Softchoice has been transforming itself from a pure volume player into a company that focuses on solutions and services for some time, it clearly saw an opportunity in managed service
By purchasing Unis Lumin, which offers managed services under the Keystone brand name, Softchoice would not only be able to offer Unis Lumin’s array of managed services to customers, but would have a platform on which to build additional managed services in the future.
Almost simultaneously last month, retail giant Best Buy announced its plans to purchase giant managed service provider mindSHIFT Technologies, in a $167 million deal. It’s not the first time a technology retailer has purchased a major MSP – that honour goes to Staples, for its 2006 buyout of Thrive Networks. But it does, according to Best Buy, signal that the retailer sees an opportunity to provide different types of services to small business customers than it has been able to do through its stores or its Geek Squad “services.” And it is a huge deal in the industry. In MSP Mentor’s 2011 ranking of the top 100 managed service providers in North America, mindSHIFT ranked third.
These two deals clearly show that even the biggest players in the industry are looking at managed services and liking what they see. Even if increased competition is causing some margin dilution in the managed services industry, the profitability of SMB managed services has to look good to a retailer.
2012: Threat or opportunity?
So do “the big guys” buying their way into managed services represent a threat to your business? Or could this be the opportunity you’ve been waiting for – will the big dollars being attracted by top MSPs raise the valuation for everyone involved?
The answer – as in most things – is a little bit of both.
On one hand, larger competitors who can use shotgun marketing or reach a massive audience through just their existing customer base may be able to attain economies of scale on smaller players. They can then choose to take additional margin, lower the price of their services to customers, or a balance between the two.
But how many small businesses will be willing to trust their business infrastructure to the same company whose only previous concept of “services” are over-priced and low-value reactive services from Geek Squad?
On the other hand, there’s the “rising tide floats all boats” argument – greater awareness of what managed services are and the value they can provide can mean more customers for everyone involved. And if you can position yourself as the long-term veteran with a track record of serving the needs of small businesses, you can cash in on that demand.
How are you seeing the M&A market among your peers, and what’s your exit strategy for your MSP business in 2012 or beyond?