Why the surging M&A trend for MSPs is hurting many SMB clients– and what to do about it.
Are you an SMB utilizing outsourced IT support through a managed services provider (MSP)? If so, you may have recently received a notification that your MSP partner is ‘growing’ due to a merger or acquisition by another MSP. This notification may also suggest the many benefits to you, the client, based on increased service offerings, deeper resources & capabilities, or broader geographic coverage.
But what is causing all this M&A activity? And how could it impact your small-to-medium-sized business?
Increased demand for managed services
With the ever-increasing complexity of technology, more and more organizations are utilizing IT outsourcing to improve operational efficiencies, reduce costs, and focus on their core competencies.
Many factors are contributing to the growing demand for managed IT services, including the accelerated adoption of digital transformation in the post-pandemic era, shifts in remote workforce and BYOD trends, increased appetite for cloud migration solutions, as well as the alarming increase in cyber threats impacting small and large businesses alike.
A managed services model for IT enables SMBs to respond quickly to market changes, leverage advanced technology, scale quickly, and operationalize robust security and threat protection processes. In many cases, managed services provide higher capabilities and expertise not currently available with internal resources, including senior-level CIO expertise and scarce, next-gen technology talent.
As organizations worldwide re-align their IT strategies to stay ahead of the curve, adopting managed services has become the go-to strategy to minimize IT infrastructure expenditures, enhance agility, and carve out more market share.
Investors flood managed services industry with acquisitions
Due to increased demand and popularity of the outsourced or managed service model, the MSP market continues to grow significantly. The global managed services market was valued at $179.33 billion in 2021 and is expected to reach $393.72 billion by 2028.
Despite inflation, rising interest rates, stock market declines, and a potential recession, the rate of MSP acquisitions continues to soar. Why? Because MSPs are an attractive investment for private equity firms, reports TechTarget. Due to the recurring revenue model, attractive cash flows, and current IT trends, M&A activity for MSPs is poised to remain strong.
So, while the MSP market is sizzling hot for mergers and acquisitions – what does it mean for the clients of the MSPs getting rolled up into larger organizations?
Common challenges and complaints for SMBs
According to NetSapiens, the MSPs involved in M&As are at significant risk due to complex integration issues, customer service challenges, divergent culture and process problems, and more. Harvard Business Review cites a 70-90% failure rate for M&As.
If you are wondering how the M&A activity could impact your business, here are a few common challenges we hear from companies whose MSP partner was acquired by a larger MSP or investment firm.
Loss of a relationship-based partner
For many SMBs outsourcing their IT functions, compliance, and security to managed service providers, the partnership’s success has been primarily due to the relationship formed between the client and MSP. When a problem arose, the SMB had a dedicated team or contact to call for a quick resolution.
Now, many acquired MSPs naturally take on the processes and procedures of the larger organization, including ticket resolution. Instead of having a local, dedicated team familiar with the SMBs IT infrastructure, their calls are transferred to a national call center, where they become just another number in a larger pool of customers.
This can be incredibly frustrating for SMBs accustomed to a white-glove customer service experience with a local MSP who referred to them by their name rather than a ticket number. In fact, MSP Alliance states that one of the biggest reasons why many MSP roll-ups are not successful is that acquiring companies view business relationships as commodities rather than professional services relationships.
Lack of responsiveness
When a national organization acquires a local MSP, a common challenge cited is complex integration and communication issues leading to disruptions in service. As mentioned above, the SMB accustomed to having a dedicated lead is now just another number and is forced to wait until someone on the other end moves the ticket resolution forward. This uncertainty and delay can cause disruptions in the SMB’s workflow leading to frustrating and expensive productivity losses. It can also be a big hit on employees’ morale if they can’t do what they are paid to do because of IT constraints.
Increased contract rates, excessive charges
It is no surprise that when a smaller MSP is rolled up into a larger MSP, the smaller organization inherits the processes of the more prominent firm. This includes contracts and billing. Many SMBs who negotiated customized contracts based on their unique IT needs have found less wiggle room with the larger MSPs and are citing more expensive package prices and unwanted services.
No local support
Many SMB clients prefer partnering with a local MSP for various reasons. First, a successful MSP partnership starts with a thorough understanding of the SMB’s business- including the business drivers, constraints, and local market conditions. Organizations feel like the local MSP is ‘one of them’ because they live and work nearby and understand the ebb and flow of the geographic marketplace.
Additionally, most SMBs prefer having local support – onsite tech support and telephone support, rather than remote service located in Seattle or other geographically dispersed locations.
What can you do if your MSP gets acquired?
If your business partners with a managed service provider involved in an acquisition, there may be benefits for your organization. But it’s essential to understand how your relationship and service level may change during and post-acquisition.
If any of the common challenges above sound familiar, it might be time to evaluate a new managed service provider partnership. Whether you maintain your current relationship or find a new partner, having transparent conversations about your organization’s IT needs – and how the MSP will create value for you is critical to the partnership’s success.
About GlacisTech
GlacisTech is a managed service provider (MSP) and managed security solution provider (MSSP) for small to medium-size businesses in the Dallas and North Texas region. GlacisTech helps businesses grow by providing innovative, state-of-the-art IT solutions that allow its customers to reduce network downtime, increase operational efficiencies, and cost-effectively scale their IT to meet the demands of their growing businesses.
GlacisTech’s suite of Worry-Free IT services includes managed IT, cybersecurity, virtual CIO, managed compliance & remediation, and cloud services.
Glacis Technologies, Inc
1130 East Arapaho, Suite 184
Richardson, TX 75081
24/7 Customer Support 469-522-2022
ITsupport@GlacisTech.com
