MSP Consolidation: Should You Jump on the Bandwagon or Risk Getting Left Behind?

The managed services provider (#msp ) landscape is rapidly consolidating. With private equity firms and large IT services companies acquiring smaller MSPs at a dizzying pace, many MSP owners are wondering if they too should consider selling, merging or acquiring. 

On the one hand, joining forces with other MSPs or being acquired can provide access to greater resources, economies of scale, and accelerated growth. But is consolidation the right move for your MSP? Or does staying independent make more strategic sense for your goals?

This critical decision depends on a variety of factors, including your current size and growth trajectory, service offerings, company culture, geographic presence, and business objectives. Here are key considerations to help you thoughtfully evaluate your options:

The Benefits of Consolidation

- Access to broader resources and IT expertise: Larger consolidated providers can offer expanded service capabilities through acquiring niche expertise. This enables serving clients more holistically.

- Improved security and risk management: With a bigger balance sheet, consolidated MSPs can invest more in security tools, infrastructure redundancy, compliance processes, and insurance. 

- Cost savings from economies of scale: Centralizing shared functions like NOC/SOC, procurement, HR, marketing across a bigger customer base reduces costs.

- Geographic reach expands: Being part of a broader national MSP can help land larger clients with locations across the US.

- Staff development and career growth: Joining a bigger team provides more lateral mobility and vertical progression opportunities for employees.

- Capital for innovation and growth: Well-funded consolidators have ample capital to invest in developing new services, technology partnerships, sales and marketing initiatives.

The Challenges of Consolidation

- Less personal touch and localization: Mega-MSPs tend to feel more impersonal. They can struggle to maintain strong localized relationships as they scale.

- Integrating different processes is tough: Combining tools, systems, workflows, and policies across acquired MSPs into a unified framework involves complex change management.  

- Culture clash: Whenever two companies merge, reconciling differences in leadership styles, values, and priorities is difficult. Important elements of culture can get lost.

- Less entrepreneurial freedom: Being part of a larger entity usually means complying with more structure, rules, and bureaucracy. Maverick spirits may chafe under these constraints.

- Layoffs and turnover: Acquirers tend to consolidate overlapping roles. This can often lead to valued talent leaving, at least in the short-term.

Should You Stay Independent or Consolidate?

So how do you thoughtfully weigh your options based on your specific context and goals? Here are some key questions to ask yourself:

- Do you want to retain full strategic and operational control over your company’s future? If so, staying independent could be best.

- Is accelerating growth in new markets and service capabilities your main priority? Then consolidation may be the fastest path. 

- Are you looking for an exit and cashing out? Selling to a consolidator may allow this. But other succession models like ESOPs can also work.

- Is your culture sacred and you fear it getting diluted? Not consolidating may be wise.

- Is access to capital for expansion your constraint? Joining forces could provide investment fuel. 

- Are you fatigued with the day-to-day grind of running an MSP? The support infrastructure of a larger provider may re-energize you.

The key is being clear on what matters most to you. Keep your strategic vision and goals front and center as you evaluate options. Resist getting swept up in MSP consolidation mania if it doesn’t align with your destination.

Brace Yourself: The Coming AI Revolution that will Turn the MSP World Upside Down

While consolidation is currently the hot trend in the MSP space, the rise of artificial intelligence (#ai ) promises to soon disrupt the market even more profoundly.

AI-driven tools are poised to automate many of the routine technical tasks that comprise MSPs’ daily operations. Software bots can handle level-1 helpdesk tickets, monitor networks, manage backups, optimize system configurations, and detect threats. This will allow MSP technicians to focus on higher-value proactive innovation and strategic engagements.

By harnessing intelligent algorithms, MSPs can also provide more predictive services to clients. AI can analyze system logs, user behavior and IT ticket data to forecast problems before they cause expensive outages. It can enable real-time anomaly detection and autonomous threat response.

The data from providing continuous managed services across the client base is perfect training material for machine learning algorithms. This allows MSPs to develop AI with better contextual understanding of each client’s unique tech environment and use cases.

But AI-enabled automation will also compress the number of billable hours and lower labor costs. Margins on traditional break-fix and block hours contracts may decline. So MSPs need to adapt their offerings and pricing models accordingly.

Leading MSPs are already exploring consumption-based pricing aligned to business outcomes. The focus is shifting from technology supply to enabling digital transformation. Savvy MSPs are positioning themselves as trusted strategic advisors guiding clients to fully leverage advanced innovations like AI, automation and the cloud.

To remain competitive, MSPs must embrace AI themselves to perform smarter predictive maintenance, better optimize client systems, deliver higher service levels, operate more efficiently and pass the benefits to customers. The future favors proactive innovation-driven MSPs over those clinging to reactive labor-intensive models.

Consolidation and AI transformation will both be disruptive forces shaping the MSP landscape in the years ahead. But by planning strategically and choosing the right growth path, your MSP can adapt and thrive well into the future.

CyberNova Equity Partners

For expert guidance on mapping your growth strategy, check out the team at CyberNova Equity. CyberNova specializes in helping MSP owners maximize value for their specific objectives. We advise you on capitalization planning, M&A direction, valuations, and execution. Contact Cyber Nova Equity at www.cybernovaequity.com to explore your best path forward.

The rapid #MSP #consolidation wave provides exciting growth opportunities but also risks. With so much change underway, take the time to carefully chart your course. Having an experienced guide can help you stay true to your mission so your company succeeds on your own terms.