Typically, MSPs are care classified as being in the game of buying technologies and selling services. Recently however the main game seems to be the buying and selling of each other.

Mergers and acquisitions have long been a key feature of the MSP landscape, as cashed up acquirers look to buy up revenue, skills, and geographic coverage.

Recently however a big chunk of that activity has been driven by private equity-backed international consolidators, such as the San Francisco-based holding company Evergreen Services Group. Its quest to build a national MSP ecosystems saw it acquire Canberra-based Centrered in 2024. It then bought WA company CT Group, followed by Brisbane-based REDD in June this year, as its 100th globally (and up to nineth locally), and then South Australia’s Blackbird IT.

Local players have also been active, and look to continue to be. One MSP Index survey found 60 percent of the 50 initial respondents were looking to acquire other MSPs or service firms, while 38 percent were open to exploring partnerships. They should find a reasonably strong pool of acquisition targets also, with 28 percent of respondents open to being acquired.

According to mergers and acquisitions specialist and 360 Consulting CEO Ryan Spillane, the strong appetite for selling comes as no surprise, and was likely to grow even further.

“You’ve got a lot of older generation owners who went through the cloud transition, and then cyber, and now you have AI coming along,” Spillane said. “They don’t want to go through that next reinvention. They are getting older and want to get out. You either keep going for another 10 or 15 years or you get out and do something else.”

Desirable attributes

According to Spillane, growth of all kinds was clearly the motivator for merger and acquisition activity.

“If you consider what the normal cost of customer acquisition is, a small or even mid-size acquisition can actually be quite cheap when compared to natural growth,” Spillane said. “Then there are existing businesses going into new location, and then there is the skills grab.”

This last motivation could be problematic however, as any skills acquired would at least initially be tied up servicing existing clients rather than contributing to the group.

As for the kind of revenue that acquires found most attractive, the and answer to that was simple – recurring revenue.

“Instead of just being at 60 to 65 per cent, people are wanting to get to 70 or 75 or 80 per cent recurring,” he said. “But that creates its own challenges.”

But even the allure of recurring revenue faced a potential challenge, however, in the form of AI, and the possibility that its use would drive down service costs would also drive down prices.

“Normal managed services have been commoditised for some time, so customers are expecting a reduction in price,” he said. “However, we are seeing cyber spend going up, and it is out-stripping and that reduction.”

Exactly what makes one MSP ripe for acquisition over another is easy to define, but somewhat harder to achieve in practice.

According to Stu Applegate, Senior IT Nation Community Director at ConnectWise, margin was still the number one factor influencing purchasing decisions.

“The private equity-owned businesses, or the ones that are being acquired, are working out how to have the right strategy to grow a business at 15 per cent compound annual growth rate, whereas the average right now in MSPs in this region is 8 percent annual growth rate,” he said.

The days of taking forever to get the business in shape for sale are fast running out.

“In the past, having a lifestyle business was no problem, but we are seeing a real shift now,” Applegate said. “It is the discipline of always being ready to sell, whether you are interested in selling or not.”

Buying to transform

One local company that has been on the hunt lately is Fusion5. Founded by Sven Martin 16 years ago as a business-focused partner, the company has expanded its focus to bring in more technical capability. That has meant acquisitions in addition to organic skills growth, leading up to its relaunch as a transformation partner this year.

Martin said Fusion5’s transformation had been timely in terms of meeting shifting market trends, and especially changes in the needs of buyers.

“The CIO used to look after that tech strategy, and now they have to elevate themselves into the business strategy, because they have to look at the transformation elements.” Martin said. “That means they have to let go of all the housekeeping stuff, which is why we have seen a surge in managed services, because everyone is outsourcing that.”

This transformation will accelerate as customers demand greater use of AI within the services they consume.

“The buying behaviours has changed, so you have to shift that value point in to ‘what it means for them’, as opposed to ‘who you are’,” Martin said.

“The conversation is now about business transformation with the underpinning use of AI."

"So customers are paying more, but we are including so much more in that.”

Old fashioned growth

Not all MSP are building their growth strategies around capital outlays, however. For those wanting to also grow organically over the next two to three years, numerous strategies have been called into play.

As expected, the most popular path to growth was through investment in automation and digital transformation (36%), such as by building or expanding AI-enabled managed services, automation tools, or AI app development, as well as using automation to improve efficiency without increasing headcount or costs.

According to Orro Group CEO Daniel Greengarten, AI and automation held the promise of finally decoupling revenue growth from headcount growth, although he stressed that one did not always follow the other.

“You are going to be able to scale directly through the technology, which means that part of your transformation as an MSP means you have to redefine job frameworks,” Greengarten said. “What is a human going to do and what is the technology going to do?

“What you want is the bulk of the heavy lifting to be at the technology layer, so you are building quasi-infinite scale.

This might therefor lead some MSP leaders scratching their heads as to where their recently liberated margins disappeared to.

Beyond generic

The next most popular option for stimulating growth was good old fashion sales and marketing investments (32%), using strategies such as building brand visibility to improve pipelines, and investing in maturing sales processes.

Brand marketing is a natural response to the challenge many MSPs find in differentiating when many sell very similar services.

Earlier research from techpartner.news had found remarkable similarity in both the service offerings of MSPs and the language used to describe them, with common repetition of phrases such as “tailored solutions”, “proactive”, “strategic partner”, “end-to-end”, “seamless”, and “trusted”.

The Perth-born managed service provider Kinetic IT has responded to this by building out its marketing function, including hiring head of marketing Lara Barnett.

She said one of her primary goals was to establish Kinetic IT as a strong brand in the technology and business landscape. She acknowledged however that not all MSPs had the patience and willingness to make the right investments.

“A lot of marketers know brand is important, but if you see where their budgets go, it doesn't align.”

Partnership and M&A were the third strategy (26%) mentioned most by the first 50 MSPs responding to our survey, while investing in talent, training and capability development was cited by 22%.

The final area that received a significant response was security, compliance, and governance (20%), suggesting many MSPs continue to see significant upside from building out their cyber capabilities.

With uncertain times ahead for MSPs, all of these strategies might be called in to play to help them navigate safely.

But for Greengarten, what keeps him awake at night are the competitive threats that he hasn’t even seen yet, but which he is sure are out there.

“What keeps me awake at night?” he asked. “It’s the seven 19-year-olds who have just built an MSP, coding through Claude, that have 700 bots operating their business and delivering an outcome at 30 per cent of our current price to market.

“That’s what I’m scared of.”