Opportunities for IT Support Expansion & Mid-Market PE Observations
Panther Equity Insights -- a private equity newsletter covering all things IT & Telecom, Tech & Business Services, eCommerce and Markets.
Welcome back to another edition of Panther Equity Insights! If you're new here, we're thrilled to have you on board.
This week we’re looking at:
Value-Add of Co-Managed Services in IT
US eCommerce Growth
Industry commentary on all things eCommerce, IT, and Software
Private Market Emerging Themes
Our aim is to provide you with valuable insights, reports, firm updates, and thought leadership on the latest trends and advancements in these verticals. We strive to create a newsletter that is easy to read, thought-provoking, and entertaining.
Before we begin, 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!
Broader Market Chatter
Value-add of Co-Managed IT services
We've consistently discussed the importance of "running to stay in place" when it comes to operating IT Solutions & Services companies. Much like cybersecurity for Managed IT providers, there's a prime opportunity to move ‘up-market’ by offering incremental services instead of standalone support. We'd like to underscore a few reasons why opportunities like ‘Co-Managed Services’ might make sense in a recessionary environment:
Cost savings for internal IT Departments
Considering budget cuts and cost-saving measures — Panther is hearing from enterprise relationships that they would like to continue delegating specific IT roles & network responsibilities to an external IT provider can be both economically and operationally beneficial for their organization. Rather than hiring a new full-time employee (or several), companies continue to be excited about accessing a pool of ‘subject matter’ resources at the same cost, or even less, with more depth of support.
Access to a new customer segment and revenue enhancement
By shifting focus and moving into the mid-market space (i.e., working with enterprise customers vs only SMB), the co-managed approach allows service providers to work with larger customers and more technical customer environments than traditional SMB footprints. Benefits here include growing budgets for IT, compliance, and cyber with an often ‘defined’ scope-of-work for the IT Service provider vs the ‘all you can eat/support’ model typically expected with SMB clients.
The ability to ‘land and expand’ with new customers
In discussions with CEOs, CTOs, and CFOs in our operating network — Panther continues to hear that many C-suites & organizations prefer to take ‘baby steps’ with procurement & relationships with new technology vendors they meet. This is a key angle as many IT Service providers (whether it be Cloud Services, Telecom, VAR, Software Development, Cyber, Managed Support, etc.) may be qualified to earn trust with customers, however, they do not offer a-la-carte or ‘Co-Managed’ solutions for clients to test the relationship initially. Providing ‘skinnier’ or add-on services (even if less profitable) can be a good ‘back door’ for IT providers to enter a larger relationship.
How does Panther think through this?
We have over a dozen Operating Partner relationships across the IT landscape alone (Sales, Marketing, CFO, Networking, Digital Transformation, etc.) with the experience and tactical skillsets needed to help with business model evolutions and growth. We’re excited to be actively talking to Service Providers, Re-Sellers (VAR & Telco), Unified Communications Companies, and Cyber providers that need help. Please feel free to reach out if Panther + our Operating bench can help.
Chart of the week: US eCommerce Growth
According to a 2022 market report from DigitalCommerce, eCommerce sales grew 7.7% in 2022, the slowest growth rate since 2009. Consumers are still feeling the pinch of higher prices by cutting back on discretionary spending.
Another indication of slowing eCommerce growth is the slowdown in the 5-year CAGR. On a five-year basis, CAGR stands at 18.4% down ~3% compared to the pandemic-fueled 3-year CAGR.
We’re Looking For Deals 🎯
Our team is focused on making investments within the IT & Telecom Services, Technology Services, Business Services & eCommerce verticals. Along with our operating partners, we have decades of experience within the mentioned verticals paired with a vast network of experienced operators and LP investors.
Size: EBITDA of $2 million – $12 million / $10M to $100M enterprise value
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
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.
Industry Commentary
eCommerce: State of M&A
SaaS: State of Current Market
MSPs (This podcast relates to what we spoke about in last week’s edition on Demand for MSSPs)
IT Services: IT services market size expands amid mixed economic signals
Podcast Feature: Panther Equity Group highlighted on Axial’s Masters in M&A Podcast
Private Market Movements
Hiring Emerges as a Key Focus for PE Firms in 2023
Despite a slowdown in M&A activity year-to-date, record levels of dry powder and easing valuations have compelled numerous PE firms to prioritize hiring deal teams and operational professionals.
A recent survey among PE executives revealed:
51% of respondents anticipate their headcount will likely increase in 2023
Approximately 28% believe their staff size will either definitely not or probably not increase
Contrary to the declining M&A volume, the narrative shifts for firms that have raised new funds in recent years and plan to actively deploy capital in 2023. Hiring for funds is typically influenced by fund size and considering the record-breaking fundraising over the past few years — it's safe to assume many groups have expanded while hunting for safe places to deploy ‘new’ capital.
Functional Roles Have Become a Main Priority for Many Investment Firms
While hiring on the deal-making side may decelerate for some firms, most have started to emphasize building in-house operating teams, which are likely to experience growth in the current environment to maintain portfolio health. These functional roles require a distinct skill set that proves valuable in a down market.
To our readers — Panther has a network of top-quality operating partners (CRO, CMO, CFOs etc.) able to help full-time, part-time, or virtually if needed. We've already made introductions to companies in 2022, and 2023 and do not need to remain formally involved — we're simply happy to extend our network. Please feel free to contact us directly to learn more if we can help.
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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.