Two MSP Buyouts Reveal Divergent Trends

This is a tale of two managed services acquisitions: Technology Capital Investors (TCI) buying Chicago-based Savid Technologies, and All Covered buying Memphis-based Service Assurance. Both deals are reflection of managed services consolidation (a debatable trend), but each is taking a different path toward future development.

Managed service advocates say the industry is going through a period of rapid consolidation. The demand for managed services is driving larger companies like All Covered to buy smaller service providers like Service Assurance to extend their market reach, increase service capacity and gain access to new accounts.

That much is indisputable.

The questions are: What’s the ultimate outcome of these acquisition strategies and what’s driving the need for consolidation?

All Covered, a division of Konica Minolta, and TCI’s latest acquisitions are following two distinctly different strategies in the development of next-generation managed services.

First, let’s look at All Covered and Service Assurance.

Service Assurance is a strong managed services player in the Southeast. It provides strategic IT planning, help desk support, backup and disaster recovery, cloud services, email and IT planning support to small and midsized customers. All Covered said it was attracted to Service Assurance because of its established practices, talented staff and list of accounts.

While not stated explicitly, All Covered leaves the impression that Service Assurance will be subsumed into the larger company, thus losing its distinctive identity. That’s not a bad thing; All Covered bought a company and everything that comes with it. Through the acquisition, All Covered expands its geographic reach and increases its customer base. In a short time, the brand Service Assurance will all be but a fleeting memory.

TCI’s deal with Savid is much different. As an investment firm, TCI is buying Savid to develop its capabilities as a standalone company. Essentially what this means is TCI will infuse support, funding and resources into Savid to increase capabilities and enhance value. Savid will plug into a growing network of companies in the TCI portfolio to leverage back-office support and management know-how.

This too is a well-worn strategy. Last fall, TCI bought Bravura Networks, a San Diego-based managed service provider. It also owns or has significant investments in OS33, External IT, Avazpour Networking Service and HostNet.

TCI’s strategy is much different from All Covered and other companies looking to roll up managed services providers into mega-MSPs. It buys companies that are either at the end of their development capacity or looking for an exit, and enables them to operate independently. They’re able to leverage the resources of the portfolio – in fact, they can leverage several TCI companies’ partners to enhance their offerings, such as the collaborations between External IT and OS33.

What makes TCI unique is that it differs from a traditional venture capital strategy. Most VC firms will invest in a variety of similar companies and extend resources to all. However, they invest with the expectation that at least half will fail. Their payoff is that the other half will be wildly successful and cover the losses of the failed companies and then some.

TCI doesn’t see the market that way. It’s investing in managed service companies with the expectation they will all become stronger. Hence, it’s regional strategy and the focus on companies with specializations, such as Savid’s strength in security and data assurance.

The larger question: Is there a managed services consolidation? It’s a dubious trend, as the total number of MSP acquisitions and mergers over the last five years is still a small fraction of the total number of managed service providers. One consolidation per day for the next year would still only amount to less than 0.5 percent of the total MSP population. But there are investments being made in managed services, and these two deals show the two prevailing paths: roll up and independent development.

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