MSPs – Weathering the COVID-19 Storm and Positioned for Growth

According to two recent industry surveys, the managed service provider (MSP) industry is holding up better than most during the pandemic-induced economic slowdown, and MSPs are well positioned for growth in the coming years. ITGlue and Datto surveyed thousands of MSPs before and after the onset of the COVID-19 pandemic. The findings from the surveys were similar and reflect the strength and resiliency of the MSP industry:

MSPs experienced solid growth prior to the pandemic.
According to Datto, nearly 80% of MSPs experienced average annual revenue growth of 5% or more over the past three years and approximately 20% of MSPs reported growth of more than 20% per year, on average.

Among ITGlue survey participants, the top third of MSPs had revenue growth and net margins over 20%.

MSPs have been impacted by the slowdown but are likely performing better than other segments of the economy.
Responses to Datto’s post-pandemic survey showed MSPs still expect to grow in 2020 but at a much slower pace than they originally forecasted. As expected, most respondents said they expect to reduce their growth plan following the onset of the pandemic, however, 11% said they are revising their growth projections upward as they expect to beat their original pre-pandemic plan.

ITGlue found that approximately half of MSPs saw their monthly revenue decrease in April as the result of the coronavirus shut down, though some MSPs reported an increase in revenue. In addition, ITGlue found responses about economic outlook didn’t change much between the pre- and post-pandemic surveys, with approximately 85% of respondents being neutral to bullish on the MSP market’s ability to recover from the pandemic. ITGlue concluded “this lack of change would seem to reflect a view of the pandemic as a short-lived economic phenomenon, one that would come with a V-shaped recovery, rather than a slower return to normal economic activity.”

Despite current turmoil, growth opportunities exist for MSPs
Although the COVID-19 pandemic has created a challenging environment for MSPs, it has also produced new opportunities. Many MSPs are observing an acceleration of cloud mitigation projects and greater demand for security, continuity, and compliance services.

Other areas expected to drive revenue in 2020 include improvement of remote access solutions, VoIP, Azure migrations, business resilience solutions, and hardware sales.

Interest in M&A waned a bit but remains strong
Prior to the pandemic, ITGlue found just over half of MSPs were either interested in acquiring or merging with another MSP (the question measured interest from both potential buyers and sellers). In the follow-up survey, interest in M&A diminished a bit but remained strong. Over 1/3 of respondents remained interested in M&A with 13% indicating an active interest (down from 17%), and an additional 24% responding they are open to an opportunity (down from 35%).

When only looking at potential sellers, ITGlue’s survey found seller interest was also somewhat diminished compared to pre-pandemic levels. The results showed MSPs that are actively considering a sale decreased from 6% to 4% of respondents, and those that are open to an opportunity decreased from 21% to 11%.

The decreased interest in M&A among MSPs is not surprising and is likely due to the high level of uncertainty caused by the onset of the pandemic. MHT expects interest in M&A among MSPs will rebound to pre-pandemic levels as the economy starts to recover and MSPs adjust to new market conditions.
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It’s too early to tell what lasting impact the pandemic will have on the MSP industry, but the surveys indicate the MSP industry seems to be doing well in comparison to most other industries, with good growth opportunities in front of them.

MHT Partners, a leading technology investment bank, believes MSPs that continue to perform well in the current environment will draw a lot of attention in the M&A market. Both financial and strategic buyers are flush with cash and looking for acquisitions, particularly those involving resilient businesses serving attractive markets.

If you would like to learn more about MHT and our Technology practice, please contact Kevin Jolley (kjolley@mhtpartners.com) or Mike McGill (mmcgill@mhtpartners.com).

Sources:
Datto’s Global State of the MSP Report (https://www.datto.com/resources/dattos-global-state-of-the-msp-report-na)
ITGlue’s 2020 Global MSP Benchmark Report (https://www.itglue.com/resource/global-benchmark-2020/)

The Connected History and Popular Regrowth of Roller Skating

Hundreds of people lined up on July 16th in Long Beach, CA, and no, it was not for a COVID-19 test. Instead, crowds assembled (hopefully socially distancing, of course!) in hopes of buying a new pair of roller skates from Pigeon’s Roller Skate Shop during its flash sale.(1) With shelter-in-place and work-from-home initiatives, many Americans have more free time than ever. As people have begun picking up hobbies new and old, specially those involving the outdoors, it is only natural that many have turned to one of America’s most beloved pastimes from earlier decades: roller skating.

Social media platforms, such as Instagram and TikTok, have been dominated with roller skating posts, accelerating the trend even further.(2)

Roller skating became popular in the 1930s and experienced surging popularity at various times, including in the ’60s through the ’90s. However, roller skating was more than an erratic trend in mainstream culture. United Skates, a 2019 documentary film highlighting the history of black roller skating rinks, tells a narrative deeply entrenched in the civil rights movement. Ledger Smith, known as “Roller Man,” skated 685 miles from Chicago to D.C. to attend the March on Washington, wearing a placard that read “FREEDOM” around his neck.(3) Popular actress Ana Octo has spent time in the recent past protesting (in roller skates) in support of Black Lives Matter and posting historical information about Ledger Smith to her 65,000 followers. (Her Instagram bio reads, “Don’t hate, roller-skate.”).(4)

Roller skating finally peaked in mainstream popularity in 2000 when 22 million Americans reported they skated at least once a year. In comparison, only 17 million people reported playing baseball.(5) Roller skates and skateboards led the U.S. alternative sports market in 2017 with $11 billion in revenue, which is expected to continue growing steadily over the next few years.(6) Bauer, a leading performance sports manufacturer, reported a 723% year-over-year online search traffic increase for inline skates.(5) Many retailers cannot keep skates in stock due to limited production, factory shutdowns, and sudden increased demand. Is 2020 the renaissance of roller skates?

As consumer investment bankers with significant experience working with clients in the outdoor and enthusiast products’ sectors, we are eager to watch this trend unfold, as well as the recent increase in biking, and see whether ”wheeled activity” will remain popular post-COVID or take a back seat to other activities once restrictions lift. Meanwhile, you can find us dusting off our old skates until we can get our hands on some new handmade Moxi skates, which currently take a whopping 10-14 weeks to ship due to factory shutdowns.

Sources:
1) https://abc7.com/community-events/hundreds-line-up-for-roller-skates-in-long-beach/6329421/
2) https://www.nytimes.com/2020/06/24/style/roller-skating-is-back-baby-taylor-lorenz.html
3) https://www.businessinsider.com/roller-man-skates-for-freedom-2015-8
4) https://www.thedailybeast.com/the-rich-history-of-black-roller-skating-rinks-and-their-civil-rights-legacy?ref=scroll
5) https://www.insidehook.com/article/health-and-fitness/rollerblading-comeback-coronavirus
6) https://www.techsciresearch.com/news/2645-roller-skates-skateboards-leads-11-billion-alternative-sports-equipment-market-in-us.html