Channel Cash Blitz: Private Equity Dollars Go MSP Hunting in 2020

The first week of the year has seen three private equity companies invest in, or flat out take over large-sized MSPs in what experts said is just the beginning of a wave of private investment headed to the channel in 2020.

“I expect to see a lot of consolidation: strategic, acquiring assets, as well as private equity,” Martin Wolf, president of martinwolf M&A Advisors -- one of the top channel investment advisory deal-makers -- told CRN. “I think it’s a hot space. We’re very active. We have a series of engagements in process. It’s a growth area … the total addressable market for this area is quite large, it's consolidated, and it's fragmented, and those three things create an opportunity.”

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West Monroe Partners on Tuesday said the managed services portion of its business was taken over by M/C Partners, a Boston-based private equity firm that is focused on communications and IT. On Monday, both Dataprise – a large, Washington, D.C. based MSP – and Computer Design & Integration LLC, announced investments from separate private equity firms.

Dataprise was taken over by Trinity Hunt Partners, a Dallas-based investment company, while CDI struck a strategic investment deal with One Equity Partners, which already has several IT properties under management.

John Pagliuca, executive vice president and general manager of SolarWinds MSP, which has 27,000 MSP partners, said he has seen interest from private equity take off after early investors developed models for both analyzing the targeted MSP business and repaying the debt.

“Why we’re seeing an increase in activity and velocity is that we’re seeing the pioneers now have a proof point,” he said. “They’re able to get this to market, turn this around, and finance it at a much quicker pace. And they’re getting some scale and some velocity into their model and then just like every other industry, we’re going to have some ‘me toos’ … There’s a lot of money to be leveraged here because of the recurring revenue.”

On Tuesday, M/C Partners announced that it closed a deal on Dec. 30 to buy the managed services division of West Monroe Partners, a national business and technology consultancy. The Boston-based company said it has previously invested in tech companies such as Thrive Networks, Involta, Ensono, Fusepoint, Attenda, Denovo, and Carbon60, among others.

M/C Partners said Wayne Kiphart was named CEO of the former West Monroe property, which will soon undergo a name change. Kiphart has decades of MSP experience as co-founder of Gratia in 2017 which focuses on cybersecurity and compliance, president of OnX Managed Services, and 13 years as vice president of managed services at Logicalis.

“I am excited to join the talented team at West Monroe Managed Services and to lead the company in this next chapter of growth,” Kiphart said in a statement. “Our focus will continue to be on driving the highest satisfaction for our customers – some of whom have been customers for over 10 years – through additional investments in service delivery and IT capabilities.”

At CDI, which Monday announced a strategic investment from One Equity Partners, president of sales Rich Falcone, told CRN the company plans to use the cash infusion for “aggressive” M&A as well as growing the company’s geographic footprint.

“Running and operating a hybrid cloud operating model is financially valuable for enterprises, but it can also create challenge and complexity,” he told CRN. “The reality of the marketplace right now is that some of the legacy providers, whether they are value added resellers or MSPs, are struggling to round that corner. We feel we’ve already rounded that corner and had our best five years in a row. Now by teaming up with OEP we can accelerate that growth and bring that value to our clients.”

Wolf said more investments from One Equity Partners could be on the way. He said OEP just completed a fundraising round for its seventh, and largest fund to date, One Equity Partners VII, L.P.

With $1.75 billion in total capital commitments, OEP has “a history of spending its funds on cross-border technology, with investments in IT companies such as Crayon IT, digital transformation specialist Orion, Allegro MicroSystems and SAP partner Rizing, LLC,“ Wolf said in a news letter.

A bigger geography is also on the mind of Dataprise, which was acquired by Trinity Hunt Partners on Monday, Dataprise founder and CEO David Eisner told CRN.

“For them they were looking for a larger, well-run, profitable MSP, and for us, we were looking for a growth-oriented partner that knows the sector,” Eisner said Monday. “Not everyone we spoke with is a student of the sector, and had a shared vision of growth. They’re a great student of the industry.”

Trinity Hunt Partners spent more than three years looking at IT managed service providers, meeting with more than 50 companies before it settled on Dataprise.

“I think what this investment gives us is that potential, starting in our geography which is Washington D.C., mid-Atlantic, then looking further afield,” Eisner said of his Rockville, Md.-based MSP which has offices in 12 cities, and more than 1,000 business customers across the U.S.