Tech Investing Poised to be Silver Lining of 2024
Panther Equity Insights -- a private equity newsletter covering all things IT, Tech, Business Services, eCommerce and Markets.
Happy Thursday 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:
Trends in MSPs and a dive into telecom managed services
Industry Commentary on sales, cloud, AI, and macro
Private market insights on Pitchbook’s 2024 PE predictions
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
Telecom Managed Services Market to grow 11.4% to reach $25B in 2024
Managed services have continued to outperform the broader market as their contracted cash flows, paired with ongoing digital tailwinds, provide investors with de-risked organic growth that is highly sought after in today’s uncertain environment.
A growth segment highlighted by experts is telecom managed services, which includes network management, security services, cloud computing, customer support, and other services aimed at allowing telecoms to run their operations seamlessly.
According to a ChannelE2E report, the market segment reached $22.9 billion in 2023 and is projected to increase to $25.5 billion by the end of 2024. Thereafter, analysts expect the market to continue growing at an average rate of 12.9% to reach $85.5 billion by 2034.
The U.S. telecom managed services market is expected to grow even faster, at an average rate of 13.9% as seen in the chart above. The U.S. market has a particularly strong runway for growth from 2023 to 2030 due to more rapid adoption of AI and advanced computing innovations.
The rise of 5G technology and integration of edge computing that reduces latency are further bolstering the market by unlocking more possibilities for IoT applications than other geographies. Cybersecurity solutions are becoming an increasing priority for telecoms as well, providing another vector of growth.
2024 is poised to be a good year for telecom managed service providers to enter or expand in the U.S. market, as a strengthening macro backdrop and strong digitalization provide tailwinds for operators. The performance of telecom MSPs will still be largely tied to the broader MSP market, though, so market participants should consider the 2024 MSP trends we discuss below.
2024 MSP Trends
In 2024, three key trends are anticipated to shape the broader landscape for MSPs according to Acronis, a data protection and cybersecurity firm. We’ve summarized them as follows:
Dependence on AI:
AI is becoming standard across applications, with AI assistants widely adopted. However, over-reliance on AI may lead to more challenging-to-detect mistakes. Enhanced training for those outsourcing work to AI is crucial to improve work quality.
Organizations prioritizing AI training and skill development will reap the most benefits. Small businesses may rely more on MSPs to deploy AI tools for productivity, emphasizing AI training for quality work. MSPs operators should consider how AI can be integrated into service offerings to value-add.
Holistic Cyber Protection:
A comprehensive approach to cybersecurity, integrating cybersecurity and backup, is gaining prominence for cyber resilience. With AI and automation, multi-layered defense tactics are crucial to combat modern threats.
The 2024 cybersecurity approach includes prevention, detection, remediation, and forensics, with integrated tools essential for customer infrastructure safety. MSPs not adopting integrated tools may face security breaches and risk customer churn.
Applications as Platforms:
More applications are evolving into platforms, offering integrated and seamless experiences for customers. Increased API exposure and integration of various services are expected. MSPs must enhance proficiency in delivering tailored solutions aligned with customer platforms.
Overall, staying ahead of these trends is vital for MSPs to gain new customers, while falling behind may pose risks including increased churn. MSP operators must iteratively plan to tackle these trends in 2024, and to build an agile culture that can pivot quickly to succeed in this dynamic market.
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
Cloud
📖 Cloud Service Provider Trends
Macro Watch
📖 Global Recession Watch: The Latest Data
GenAI
🎤 Predictions 2024: For B2B Teams, GenAI Will Yield Mixed Results
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
Tech PE Poised to be Silver Lining of 2024
In Pitchbook’s 2024 Private Equity Outlook, several analysts predict a continuation of sluggish private market trends for the first part of 2024, including a lack of exits and reduced fundraising. However, a silver lining of the report is that they project the tech PE sector to shine.
Pitchbook’s analysis is first based on historical trends. Since 2010, tech-focused PE funds have consistently outperformed diversified funds, as tech PE has generated excess returns of 5.8% IRR per year since 2010. Analysts believe market conditions are ripe for this outperformance to continue.
Despite facing challenges in recent years, marked by market corrections, surging interest rates, heightened recession risks, and uncertainty in IT expenditure, there is optimism within the fundamentals.
The core business strengths of the tech and software sectors remain robust, and valuations have become more reasonable. An analysis of publicly traded software companies seen in the chart above reveals that valuations are below the five-year average on both an EV/sales and P/E ratio basis. Yet, strong fundamentals, such as EBITDA margins reaching five-year highs in 2023, indicate the continued strength of the sector.
Combining these factors with a stabilized valuation landscape, anticipated rate cuts, and softening inflation expectations, provides a strong opportunity for PE managers skilled at enhancing the operational efficiency of tech companies.
In addition, valuation expansion in the software sector is expected to correlate with interest rate declines, as suggested by historical data. Software valuations have strongly benefited from falling risk-free rates in past cycles and analysts predict this will hold true for the upcoming cycle.
Overall, the stage is set for a profitable 2024 for tech-focused PE funds, underpinned by robust sector fundamentals, favorable economic conditions, and the inverse correlation of software valuations relative to interest rates. Tech operators and LPs should capitalize on the opportunity but still be mindful of inherent risks, such as a resurgence of recession risks that could put downward pressure on tech valuations and IT spending. Sentiments are overall optimistic, though, as current tailwinds in tech appear more favorable than the broader market headwinds.
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.