US investors continued to create buzz in the Australian IT channel this year, so it’s no surprise that Kaseya DattoCon Asia-Pacific in Sydney this week features an M&A Symposium on November 12.
Kaseya’s global M&A Concierge Program has seen “regular introductions and conversations underway, about half a dozen to a dozen a week”, according to Kaseya’s VP & General Manager APAC, Daniel Garcia. He said the company expects a continued upward trajectory in acquisition prices
CRN Australia asked Garcia for his view of the Australia and New Zealand IT channel M&A landscape.
CRN Australia: What is the current state of M&A in the ANZ IT channel?
DANIEL GARCIA, KASEYA: We continue to see mergers and acquisitions being a huge talking point for organisations locally. We are still seeing a strong preference to buy rather than sell. When I speak to different MSPs, they see M&A as a form of growth, giving them the opportunity and ability to scale the organisation. That said, there are MSPs who are looking to sell, but in a lot of these cases, these companies are still 12, 24, 36, months away before they would consider selling. The reason for this is they want to make sure that they are maximising their value. MSPs should focus on securing long-term contracts with customers, demonstrating consistent year-over-year growth in revenue and profits, and optimising their business operations for maximum efficiency. Kaseya plays a pivotal role in assisting MSPs achieve these goals, enabling them to become more efficient and profitable. This, in turn, increases their appeal to potential acquirers and positions them for successful M&A transactions.
CRN Australia: What buy-side trends are you seeing and what are the implications for the ANZ IT channel?
DANIEL GARCIA, KASEYA: ANZ is witnessing a surge in foreign interest, particularly from the US, as organisations seek to expand their operations into the region. This trend is fueling a wave of acquisitions across the IT channel, ranging from small-scale mergers between MSPs to consolidations among larger players, which we anticipate to be an ongoing trend.
While cyclical, we anticipate this acquisition activity to continue, potentially leading to the emergence of even larger MSPs in the near future. Additionally, there's a growing likelihood of publicly-traded IT companies considering privatisation, which could further reshape the market landscape.
There's a growing likelihood of publicly-traded IT companies considering privatisation, which could further reshape the market landscape - Daniel Garcia, Kaseya
CRN Australia: There has been notable US investment and acquisition activity in the ANZ IT channel in the last 12 months. Do you expect that level of activity involving overseas players to continue and why?
DANIEL GARCIA, KASEYA: We definitely expect this level of activity involving overseas players to continue. The ANZ IT channel has witnessed a significant influx of US investment and acquisitions with US buyers being particularly drawn to companies with strong leadership teams that are dedicated to driving growth. We anticipate a continued upward trajectory in acquisition prices, which had previously plateaued with the key differentiator being a strong, professional management team that has had some runs on the board.
We anticipate a continued upward trajectory in acquisition prices - Daniel Garcia, Kaseya
CRN Australia: Is the number of MSPs in ANZ shrinking or increasing and what are the implications for ANZ IT business owners?
DANIEL GARCIA, KASEYA: Despite significant consolidation, whether it's through mergers or acquisitions, the overall number of MSPs continues to grow. SMBs are becoming more reliant on MSPs to support their technology needs, and so the market remains robust, even outpacing the rate of mergers and acquisitions.
CRN Australia: What ANZ MSP capabilities, business models, attributes etc. are making MSPs more attractive and resulting in best sale prices for their businesses at the moment? Do you expect that will change and why?
DANIEL GARCIA, KASEYA: Key attributes driving higher MSP sale prices include:
- Customer Concentration: Buyers are looking for a diversified customer base that does not have a heavy reliance on a small number of large customers. For example, not having a single customer representing more than 30-40% of revenue.
- Customer Contracts: MSPs with longer-term, locked-in contracts (12-36 months) demonstrate stability and predictability and are therefore seen as more valuable than those with month-to-month arrangements.
- Management Team: Having a strong and experienced management team capable of sustaining growth and are not wholly reliant on the founder/owner are highly attractive to buyers.
- Security Posture: Having a good security posture for you and your customers instills confidence and will drive a higher price point.
These attributes are likely to remain crucial for achieving high sale prices in the ANZ MSP market. As the industry matures, buyers will continue to prioritise MSPs with a strong track record, resilient business models, and a commitment to security. However, emerging trends such as automation and AI-powered services may introduce new factors to consider in future valuations.
CRN Australia: Different buyers have different M&A criteria. But what is the ANZ M&A sweet spot? In other words, if you had to describe the IT channel business that would attract the most attention right now from buyers, what would it look like?
DANIEL GARCIA, KASEYA: The ANZ M&A sweet spot is in the eye of the beholder, and what one organisation sees as valuable others see as a disadvantage. There is definitely a trend towards larger organisations that are looking to acquire companies that are looking at revenue scale and organisations with AUD$10 million or more in annual revenue are generally more appealing due to the potential for significant returns. Market position would also attract attention given the well-established presence in the ANZ market, with a strong customer base and brand recognition. Scalability is also important because a business model that can be easily scaled to meet increasing demand and capitalise on new opportunities is extremely attractive to buyers.
While larger deals are often in the spotlight, there remains a healthy market for smaller MSPs seeking to acquire and consolidate operations. This approach can provide a more targeted growth strategy. In fact, I've spoken to many different MSPs who are looking to continue to buy small MSPs who see the benefits of having that “one man” organisation up and down the coast which can provide geographical spread across the country.
I've spoken to many different MSPs who are looking to continue to buy small MSPs - Daniel Garcia, Kaseya
CRN Australia: Industry specialisation, technology specialisation, and IP are sometimes touted as ways for IT partners to increase the value of their businesses. Are you seeing much evidence of that?
DANIEL GARCIA, KASEYA: By specialising in specific industries or technologies, MSPs can significantly enhance their attractiveness to potential buyers. A buyer might be looking for specific industry expertise or a niche that represents the "missing piece" that the buyer wants to add to their capabilities. This specialised knowledge not only expands their capabilities but also opens up new opportunities for cross-selling services to a broader customer base. These unique value propositions can often result in higher valuations in M&A transactions, and can be a strategic move for MSPs looking to stand out in a competitive market and increase their attractiveness to potential buyers.
CRN Australia: Kaseya has stated that “despite the importance MSPs play, studies show profit margins of just 8% to 12%, unlike the higher margins seen in other professional services.” Do you see this changing and how?
DANIEL GARCIA, KASEYA: While the MSP industry has historically faced relatively low profit margins, Kaseya believes that this trend can be reversed. We see organisations that are “Powered by Kaseya” becoming more profitable and more efficient than their competitors. This means that our platform offers a comprehensive suite of integrations and automations that are only accelerating and will allow MSPs to deliver services more effectively, efficiently and it's going to move the needle from a percentage perspective on their profit. We are also purposely at a price point that MSPs can afford and that their end customers can absorb for whether it's security, compliance or backup, or any other technology requirements that the client needs. By embracing our technology, MSPs can position themselves for long-term success and differentiate themselves from competitors in a highly competitive market.
While the MSP industry has historically faced relatively low profit margins, Kaseya believes that this trend can be reversed - Daniel Garcia, Kaseya
CRN Australia: In your view, what is the opportunity for the likes of Virtual IT Group and other acquisitive MSPs in the $50-$100 million revenue bracket that have growth ambitions?
DANIEL GARCIA, KASEYA: The vast majority of MSPs in the $50-$100 million revenue range have huge growth ambitions, and should be actively seeking growth, both organically and through acquisitions.
Organic growth is essential for maintaining a strong valuation, as it demonstrates the underlying health of the business. However, well-executed acquisitions can accelerate growth and expand market reach. This dual-track approach makes these MSPs particularly attractive to larger channel firms and private equity investors seeking to deploy capital.
By combining organic growth with strategic acquisitions, MSPs in this segment can position themselves for continued success and solidify their leadership in the market.
CRN Australia: What opportunity do you see for M&A for even larger ANZ channel firms in the tier below the likes of Datacom and Data#3?
DANIEL GARCIA, KASEYA: Firms of this size have a significant opportunity to leverage M&A to drive growth and enhance their market position. It goes back to what was mentioned earlier around specialisation. By acquiring organisations with specialised expertise or unique offerings, these firms can expand their service portfolios and cross-sell new solutions to their extensive customer bases. This strategy not only differentiates them from competitors, but also allows them to capitalise on their existing customer relationships and provide more comprehensive solutions.
CRN Australia: There is a stereotype that many MSPs owners and managers don’t have solid grounding in business fundamentals, such as accounting. To what extent is this holding back MSPs when it comes to growing the value of their business, and M&A?
DANIEL GARCIA, KASEYA: While the stereotype of MSP owners lacking business fundamentals is not entirely unfounded, it's crucial to recognize that it's not a universal truth. Many MSP founders started as technicians, but with the right guidance and support, they can successfully transition into business ownership.
One of the most effective ways to address this challenge is to surround yourself with a capable team that complements your strengths and fills in the gaps. By leveraging the expertise of others in areas like accounting, marketing, and sales, MSPs can enhance their business acumen and make more informed decisions.
Additionally, participating in peer groups and mentorship programs can provide invaluable insights and support. These resources can help MSPs navigate common challenges, learn from the experiences of others, and develop best practices.
By investing in professional development and seeking external guidance, MSPs can overcome the limitations of a purely technical background and unlock significant value in their businesses. This not only improves their profitability but also makes them more attractive acquisition targets.
CRN Australia: What’s the latest with the M&A Concierge Program in ANZ? Can you tell us about any M&A Concierge Program ANZ success stories?
DANIEL GARCIA, KASEYA: As mentioned, M&A is such a big part of the conversation taking place in the industry right now, and we really want to help support our customers who want to go on this journey. The M&A Concierge Program is Kaseya’s platform to simplify and facilitate the entire M&A process so buyers and sellers experience maximum transaction value with an accelerated timeline to success. We launched the M&A Concierge Program at Dattocon a year ago, and it was created to help facilitate broker conversations, introductions and connections between potential buyers and sellers, ensuring they find the perfect fit when it comes to revenue, profitability, company culture and customer demographic. We know that a greater alignment brings a far greater chance of success..
The program was also developed because we understand the challenges inherent in letting the world know you’re ready to sell. The M&A Concierge Program discretely identifies and reviews potential buyers without alerting and alarming your employees and competitors.
We have seen regular introductions and conversations underway, about half a dozen to a dozen a week - Daniel Garcia, Kaseya
With our global customer base, it really makes sense for us to be able to make relevant and meaningful introductions so that customers can leverage the tools and services provided in the M&A Concierge Program.
In terms of success stories we have seen regular introductions and conversations underway, about half a dozen to a dozen a week. These transactions obviously take a significant amount of time, so we are hoping to see some big announcements coming out of the program relatively soon.
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