The Root of Uncertainty
If we take a look at the IT services industry over the last 20 years, it wasn’t too long ago that the idea of anyone in private equity showing interest in investing in our businesses would have seemed unlikely, if not unfathomable.
Fast forward to the present, and we see some of the industry’s most-loved brands bought out by PE firms, injecting huge sums of cash into the sector. We’re thinking of ConnectWise and Thoma Bravo or Kaseya and Insight Partners. Not to mention Kaseya’s PE-supported acquisitions of industry favorites Datto and IT Glue.
As the ownership of some of the most important tools to our business changes from dedicated technology evangelists to dedicated money makers, it’s easy to wonder how this might play out in the long run. Of course, plenty of ink has already been spilled on how these organizations might change under new ownership, but what does this mean for the industry as a whole?
Where exactly are we headed?
Private Equity Curveballs – What We’ve Seen So Far
Many of the businesses that now find themselves in the hands of private equity firms have been foundational to the MSP industry. In particular, we saw the RMM vendors shape the community by introducing the RMM service and demonstrating to MSPs and IT solution providers that a recurring revenue model was possible with their tool.
We also saw company leaders build out communities and bring MSPs together in both shared successes and challenges. This created a sense of trust and connection in the community, not only with the vendor but with the leadership as well.
As these relationships evolved over many years, the bond between the MSP community and the leaders of these pioneering vendors grew and evolved.
When such firms announce their acquisition by a private equity firm, it triggers both an emotional and a business response in the vendor’s MSP community. Questions arise about both what and who will change.
Best Interests and Best Practices
Long before the days of private equity money in the industry, MSPs have questioned whether vendors, who have quite a lot of power to shape the industry, still have the best interest of the MSP and consumers at heart. Or, was the primary goal only to create value for the founder? Fortunately, we were given a large base of excellent founders of key vendors, and their guidance generally aligned well with the best interest of both MSPs and consumers.
However, with the introduction of private equity firms comes a different set of incentives and motivations. If these vendors continue to be the drivers of best practices, where the services are going, and how they’re delivered, we need to ensure that current practices are vetted against tried and true best practices.
As an industry, we still want leadership from our pioneers. Understanding that they maintain their leadership values is critical to maintaining a true sense of security.
Potential Impacts of Private Equity in the Industry
When thinking about the impact this could have on the future of our industry, it’s helpful to think about timing. There are a large number of service providers in the industry that have been around since the sector was nascent – between 1999 and 2003. In the 20 years that have passed, the original owners have, of course, aged and may well be at a point of thinking about succession planning. But how might this play out in an industry that has seen an influx of private equity money?
In the past, an MSP may have been passed down to a family member employed within the business according to their succession plan, or perhaps sold to a peer or competitor. Now there’s a significant possibility that they may seek out a private equity buyer eager to invest their money in boots on the ground as owners exit their businesses.
This potential corporatization of MSPs themselves leads to more questions. Will we see more and more MSPs bought out by private equity firms over the coming years? If so, might this level the playing field in terms of influence on vendors and MSPs alike?
Or, could it be that after a first wave of potential investment in MSPs, private equity firms determine there’s no money in owning an MSP and seek to divest, putting MSPs back in the trenches without financial backup?
We don’t know yet if this change will be used as a force for good or a possible distractor from the original missions of our founding vendors. What we do know is that the sums are massive, the momentum is in full swing, and we must continue raising questions about where this might take us over the coming years.
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