Managed IT Services Market to Grow 12%+ in 2024
Panther Equity Insights -- a private equity newsletter covering all things IT, Tech, Business Services, eCommerce and Markets.
Happy Wednesday folks! Welcome back to this week's edition of Panther Equity Insights, the bi-weekly newsletter from Panther Equity Group.
This week we’re looking at:
Industry Commentary on digital supply chain, e-commerce, and cloud M&A
Trends and forecasts in business services and services verticals
Private market insights on KKR’s analysis of private investment structural shifts
Our aim is to provide you with the latest insights and advancements in these verticals, along with valuable perspectives. We strive to create a newsletter that is informative and thought-provoking for all market participants.
We’re Looking For Deals 🎯
Our team is focused on making investments within the IT Services, Technology Services, Business Services & eCommerce verticals. Along with our operating partners, we have decades of experience paired with a vast network of experienced executives and LP investors.
Size: EBITDA of $2 million – $12 million
Geography: U.S. or Canada headquarters
Target Transaction: Majority, significant minority, and structured equity investments
Business Profile: Founder or closely-held ownership with an experienced management team
Additionally, Panther is actively looking for ‘add-on’ investments that meet the following criteria:
Industry: IT Digital Transformation / Software Dev 💻
Size: Up to $4 million in EBITDA
Geography: Flexible
Target Transaction: Majority recapitalization
If you’re a Founder / Shareholder interested in working with Panther, or an intermediary with a deal to share — feel free to reach out and get in touch with us! We are happy to compensate fees to intermediaries & referrals at market levels.
Broader Market Chatter
Managed IT Services Market to Grow 12%+ in 2024
The overall MSP market is expected to grow by at least 12% this year, according to research by Canalys. Most of this growth is being driven by digital trends such as customer demand for cybersecurity management, cloud infrastructure, application development, AI solution consulting and compliance requirements.
Here are some of the key insights I’ve highlighted from the Canalys report:
The MSP model is evolving, and the ecosystem will bring better customer outcomes
There’s a significant rise in the different providers involved in services, and smaller partners are now offering managed services to large customers across geographies.
50% of MSPs report they will be working in a managed services hybrid delivery model in 2024
Providers will collaborate across partners and vendors, as well as with customers’ IT teams, to deliver tailored solutions.
Cybersecurity managed services will bring more value to partners and customers
34% of MSP partners expect over 20% growth in their cybersecurity revenue in 2024, as cybersecurity affects everything from the services partners can offer to the complexity of the solutions delivered to customers.
AI generates opportunities for better customer management
One of the most important opportunities for MSPs in AI is deploying Microsoft Copilot, as customers are still not familiar with how they can use it.
MSP partner programs will become more widespread in 2024
A recent poll showed that 69% of channel partners felt a dedicated MSP program would improve their relationship with a vendor.
MSP providers will have significant opportunities to expand in 2024 as the market grows, but providers must also react quickly to evolving customer needs. This year, new customer acquisition, budgeting and skill development will be the focus of most MSPs.
Customer acquisition remains the top priority for many MSPs as the market grows more competitive with new entrants. Many will have to decide whether to focus on expanding their coverage of existing clients, acquiring new customers, or both.
Marketing is another concern as MSPs need to find new ways to acquire customers, but lack the budget needed for marketing campaigns or teams.
A solution tight-budgeted providers have deployed is upskilling current staff, improving their technical skills as well as training them in marketing rather than rely on dedicated marketing resources. Solutions will vary by situation, but all MSPs must be thinking of creative ways to maintain or grow their market while staying within budgetary constraints.
MSP M&A Expected to Increase 50% in 2024
Though the MSP market remained strong in 2023, M&A was exceptionally weak. MSP M&A activity fell 60% from 2022 to 2023 as interest rate hikes and macro uncertainty reduced sales and compressed valuations.
The successful MSP M&A in 2023 was mostly company groups formed as several MSPs combined into a larger entity to take advantage of specializations and to drive economies of scale. These companies were able to target large customers while providing highly specialized solutions, providing more value than competitors.
Looking into 2024, Canalys predicts M&A to grow 50% in 2024 which represents about 60% of 2021 levels. Though M&A activity will likely not return to the frenzy levels seen in 2021 and 2022 for a long time, 2024 should see a healthy rebound fueled by interest rate cuts and valuation increases.
MSP acquirers should consider beginning processes now to execute deals before higher valuations and very competitive M&A processes fully return.
About Us
Panther Equity Group is a private equity firm focused on making investments within the IT Services, Technology Services, Business Services & eCommerce verticals.
Our team and Operating Partners have decades of experience within our focus verticals along with a vast network of experienced operators and LP investors.
We have the Operational, Technology, M&A, Business Development, and industry-specific Strategy expertise to help companies accelerate their growth and reach their full potential. Learn more about Panther Equity Group by heading over to our website:
A Trusted Partner For Founders, Companies & Entrepreneurs
Industry Commentary
MSP
📖 MSP Future Outlook
Cloud
📖 2024 Cloud Computing Trends
M&A
📖 2023 Annual Global M&A Report
If you’re a company Founder / Shareholder interested in working with Panther, a deal maker interested in connecting or with a deal to share, or an Operating Executive looking for a part-time, full-time, or a Board Level Role — feel free to get in touch with us!
Private Market Movements
Broader M&A Recovery Expected in 2024
Pitchbook’s latest research report predicts a recovery in M&A market in 2024 following the Federal Reserve’s anticipated easing cycle. This would be a welcome relief to corporate and private equity acquirers who saw the weakest M&A year in a decade in 2023, mostly because of 12% or higher borrowing costs.
As seen in Pitchbook’s chart above, the M&A market shrunk 15.8% year-over-year to $3 trillion in 2023. But despite the decline, analysts predict the macro headwinds are behind us and that a nearing Fed easing cycle will drive a recovery in transaction activity.
March 2024 will mark the two-year anniversary of the Fed’s historic rate hike cycle. Analysts predict this date will be the milestone that signifies the end of the rate hike cycle and the start of a new Fed easing cycle, where interest rates will progressively be cut back down to the historic average of 2-3% over several years.
Strong Middle-Market and Q4 M&A Activity
It’s important to note that while 2023 was a bad year for the broader M&A market, the middle market remained insulated. While the $3 trillion in deal value marks the worst year in a decade, the 40,000+ deals in 2023 represents the 3rd highest ever, only surpassed by 2021 and 2022.
This is because most deals today are being executed in the middle market, where lower leverage on average reduces the impact of high borrowing costs. A broader market recovery will undoubtedly boost M&A of all deal sizes, but middle market investors should be able to find many opportunities in the current landscape.
In addition, a market recovery may already be starting even with rates at historic highs. As seen in Pitchbook’s chart above, Q4 M&A data far exceeded expectations with M&A deal value increasing 17.8% year-over-year and an even greater 35.9% quarter-over-quarter.
These results indicate acquirers are finding organic value drivers and operating improvement opportunities to create value that exceeds the negative impacts of high borrowing costs.
Overall, Investors can expect stronger deal flow in 2024 as lower borrowing costs allow the $1.6 billion in PE dry powder to get put to action. However, this doesn’t mean GPs should be waiting on the sidelines until rates decrease. Investors who can execute in the current environment likely have strong operational capabilities and rate cuts will only add to their performance.
Private equity has recently transformed to rely on operational success and organic growth rather than financial engineering to drive returns, and a nearing rate cut cycle won’t reverse this trend. Investors in today’s market must have deep knowledge on running the companies they are acquiring to succeed in creating outsized returns through operational transformation.
About Panther Equity Group
Panther Equity Group is a private equity sponsor seeking to provide capital, strategic support, and resources to healthy & well-positioned private companies in the lower middle market. We typically focus on companies with $2 million - $12 million in EBITDA and seek to make majority or significant minority equity investments.