KUHN CAPITAL Friday, December 15, 2017
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MSPís: Lovelier the Second Time Around

1/9/08

The managed services provider sector, a one-time mini-bubble in the dot.com froth, finally appears to be gaining real traction.

MSP vendors come in lots of flavors, but in general they remotely manage their clientís IT needs with hosting, backup storage, VoIP, security, user tech support and workplace applications Ė anything that can be exported beyond the userís walls. As Internet use becomes ubiquitous and as MSP software platform vendors like N-Able, Autotask and EVault, a Seagate sub, mature, increasing numbers of SMBís (small and medium-sized businesses) without the resources to employ internal IT staff find themselves attracted to the proposition.

Whatís interesting is where these MSPís are coming from. The largest are interlopers from adjoining industries of which there are many: regional broadband telecom players like Zayo, national telecom carriers like Verizon, the services arm of IBM and tech services vendor EDS, Dell, even VARís who traditionally sell hardware/software packages to local businesses and who have been living with ever-tightening margins.

In sum, itís anybody who has or wants a fat pipe connection to SMBís, a huge and still relatively untapped IT/telecom market that promises a rapidly growing, recurring revenue stream.

While still embryonic, we think the attractiveness of the concept and the deep pockets of the outsiders looking in are harbingers of rising M&A activity ahead. The challenge for pioneering independent MSPís is mastering very complex technologies at the same time that they build a growing client base. Maybe big risks, certainly big M&A rewards.


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