IT and Business Insights for SMB Solution Providers

Kaseya Exec Sees Coronavirus Economy Producing Buyer’s Market for MSPs

According to Jim Lippie (pictured), the COVID-19 crisis has the private equity investors behind regional and national MSPs anticipating lower prices on smaller, financially distressed firms. The time for deciding what to do about that, he warns, is now. By Rich Freeman

Remember February?

Movie theaters were packed. The Dow Jones Industrial Average briefly touched an all-time high. And precisely one American had died from COVID-19, the disease caused by the new coronavirus now plaguing the planet.

“It seems like a lifetime ago at this point,” observes Jim Lippie.

February is also when Lippie, a former MSP who is now general manager and senior vice president for partner development at Kaseya, made a guest appearance on the ChannelPro Weekly podcast to discuss his prediction that regional and national MSPs—with active assistance from private equity investors—were poised to begin leveraging their deep pockets and economies of scale to crowd smaller firms out of the market.

“In the next three to five years, we’re going to see a lot more consolidation,” he said. As a result, he continued, smaller MSPs faced an impending choice: Get big themselves through mergers and acquisitions, get out by selling to private equity or some other buyer, or get specialized in a vertical industry or niche market where margins are high and competition scarce.

That interview was recorded five whole weeks ago, though, when the COVID-19 crisis was only beginning to make itself felt in the U.S. Now, according to Lippie, MSPs have the same strategic options, but far less time to pick one.

“The dynamic is going to shift from the three, four, five years that we were talking about to one to three years,” he told ChannelPro in a follow-up conversation this week. 

His reasoning is based on more than just conjecture, moreover. With skyrocketing unemployment and plummeting economy activity set to put many MSPs in financial distress, private equity investors eager to build managed services giants are getting ready to pounce.

“I’ve talked to several private equity firms that are involved in MSP rollups at this point, and they see this as a huge opportunity,” he says. “They see this as a big buying opportunity to get some high-quality businesses at a lower valuation than we saw even two, three, four months ago.”

The implications for IT providers pondering their future in a changed industry, Lippie continues, are clear: “You need to act now.”

Deciding how to act, though, won’t be simple. Lippie advises channel pros to base their choice on an honest assessment of their financial health and business model. Those with a strong balance sheet and steady stream of recurring revenue, he says, will probably have the luxury of settling on a strategy after the worst of the COVID-19 crisis has passed and a longer-term economic picture has come into focus. Especially at a time when many of them are working from home and going all-in on cloud computing, after all, businesses know they can’t afford to be without good IT help.

“Your customers are looking at you almost as a utility,” Lippie observes. MSPs that bill per user may see contract values decline when clients lay off employees, but they’ll continue to have cash flow.

The road ahead could be rockier though, he continues, for VARs and solution providers whose profits come chiefly from project work and hardware sales. Customers that are currently snapping up laptops, webcams, and other remote work gear for their employees will soon start conserving capital and delaying non-essential IT work.

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