How Industry Consolidation Impacts MSPs

Post Date: 10/06/2022
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The past two years have seen record-breaking merger and acquisition (M&A) activity within the tech sector – and from the look of things, it’s not going to slow down any time soon. Even with economic uncertainty and global conflict, many companies are pursuing aggressive M&A strategies as a way to extend product and service capabilities and scale their operations.

Mergers and acquisitions can have both positive and negative effects on various stakeholders. When two companies combine, there can be a number of downstream effects that can temporarily or permanently impact the customer and/or partner experience. With acquisition announcements of our own, most recently tyGraph and Combined Knowledge, AvePoint is keenly aware of the impacts this news has on our customers, our partners, and our own employees.

Integrating new people, business processes, and customer technologies can be challenging. A big part of AvePoint’s successful strategy has been to identify companies with complementary products and services, with a number of shared customers who will immediately benefit from the combined offerings and with similar company cultures.

That’s certainly great from a customer and employee perspective, but the question we hear from many of our partners is: “How do these mergers and acquisitions impact the MSP landscape, and our business?”

msps meeting

When MSPs Merge

Within the Managed Service Providers (MSPs) ecosystem, there is rapid change happening on two primary fronts: MSP consolidation and ISV consolidation.

MSPs are often targeted for acquisition because of their regional presence, their industry focus or specialized subject matter expertise, or simply for their expertise around remote and hybrid work. Many are growing to survive as the level of competition increases, and without a growing team and a constant influx of new technologies, it can be difficult to differentiate.

Many IT services have become commoditized, which means that MSPs are always looking for ways to differentiate. However, the cost and complexity of trying to keep up with the constantly evolving IT industry can be difficult for a small team. A merger with another MSP not only provides instant expansion of the team, but it also presents an opportunity for the cross-selling of products and services.

For most MSPs, growth means expansion across vertical markets (Healthcare, Manufacturing, State and Local Government, and so forth) as well as across specific solution areas (Project Management, HR, Sales, Marketing, etc.).

Of course, a merger of two MSPs may also require the consolidation of products and services. This could mean comparing software tools and product offerings and making decisions about where to cut. Consider:

  • Which is the stronger offering?
  • What makes the most sense for the business?
  • Which people are essential?

msps consolidation

The Impacts of ISV Consolidation

Similarly, M&A activity within the ISV (independent software vendor) space can also have a direct impact on an MSP. As with any merger, the combined ISV needs to review and consolidate product offerings and make decisions about where to make cuts.

Impacts on MSP partners might include Service Level Agreement (SLA) and licensing modifications, changes to the product portfolio, or the reassignment of key personnel that you’ve come to rely on.

Of course, an ISV merger can also be a huge advantage for MSP partners thanks to benefits like the addition of new tools and product offerings, additional technical and support personnel, and entirely new revenue streams. M&A can have an immediate impact on innovation.

As an ISV partner grows, there are often improvements to its channel programs as well. AvePoint is a great example of this change. Since the launch of our partner program in July 2021, we have added 3,500 channel partners globally, and with each successful acquisition we’ve been expanding our product portfolio and providing more depth and integration into existing product families.

Not every M&A activity ends up this way, of course, and not every acquisition is done with the same growth goals as we’ve done with our business. MSPs need to do their due diligence and understand how their ISV partner’s M&A activity could help or hamper their own growth strategies.

The Opportunity for MSPs

MSPs should vigilantly review and evaluate any partner’s commitment to their businesses. This check-and-balance goes both ways: ISVs frequently gauge the value of their partnerships and allocate marketing funds and other incentives based on their visibility into the MSP partner’s business, and an MSP should have visibility into – and trust in – the ISV’s product roadmaps and overall business strategies.

msp opportunity

As an ISV expands its footprint through M&A activity, there are 4 key opportunities for MSPs:

1. An Expanded Product and Service Portfolio

The addition of new technology offerings can have an almost immediate impact on the growth of an MSP, and key technologies can be a distinct competitive advantage. By establishing a strong relationship with your ISV partner, new offerings can help you reach a broader customer base.

2. Brand Differentiation

With more products and services to offer your customers, there is more room for you to specialize, which helps differentiate your own brand. Focusing on one or more core industries and specializing in tools and services that have been customized for those industries can be a key differentiator from competitors who offer standard solutions.

3. Closer Relationships With Customers

Digital transformation is often a “last mile” activity that requires closer engagement with customers. Investing time and resources in ISV certifications and close alignment with their product and customer success organization means adding depth to your customer offerings. Focusing on adoption and engagement–which are high-touch activities–benefit from this deeper product understanding and expertise.

4. Stronger Revenue Streams

All of these things (expanded portfolio, brand differentiation, close customer relationships) mean an increase in the size and length of your customer contracts.

The adoption of collaboration and communication technology during the pandemic and our post-pandemic focus on hybrid work means that companies of all sizes are also being impacted by an increase in cybersecurity threats. This is especially true for small to medium-sized businesses where the cost of a security breach per employee far exceeds the costs for an enterprise.

With more and more organizations looking for hybrid work options, the greatest opportunity for AvePoint partners is to focus on cybersecurity around both communication and information management systems. And if you are not yet an AvePoint partner (sign up today!), it’s always wise to stay up-to-date on competitive solutions.

cybersecurity partner

What to Look for in an ISV Partner

Naturally, when looking at an existing ISV partner or a prospective partner that has recently gone through an M&A activity, there are a few things you should take into consideration.

How long has the ISV been in business and worked within this industry or vertical?

No matter how long you have worked with an ISV, the addition of a new product through acquisition should always go through an internal review as if it were a brand-new prospective partner. Always do your research and look into alternatives should you lose confidence in the newly-acquired business. Do some research into past acquisitions and check out any feedback from customers and partners. That will tell you a lot about what you can expect.

Was the ISV acquired by an investment / private equity firm? And if so, what is their acquisition history?

This is an especially important question as not every private equity investor is the same. Many PE firms have the goal of taking an existing product and customer base and adding them to an existing portfolio, cutting product and engineering costs dramatically and many times even cutting whole support organizations. They then upsell these new solutions to their existing customer list and the existing portfolio to their newly acquired customer list. For most PE firms, the focus is not on innovation but on cutting costs and overhead and focusing entirely on sales. Not every PE firm treats their acquired companies the same, so be sure to investigate thoroughly.

msps acquisition

Are there / will there be any changes to licensing, support, or product updates?

The biggest impact an ISV acquisition has is to the longevity of the acquired solutions. If you’ve invested time and training and support in a solution, and that solution is acquired, you need to do your homework. You need to understand how existing agreements are impacted, and whether licensing costs, support SLAs, and product updates will be maintained.

Are there competing solutions that offer partner incentives to help customers quickly transition?

If a core ISV solution that you’ve built your business around has been acquired, it also smart to be aware of competing solutions. Many ISVs, including AvePoint, will usually offer these partners and customers deals to help your customers quickly transition, so be aware of these partner incentives. MSPs have to watch for signs that their preferred vendors are wavering in their support, or making changes that will negatively impact their business. If something causes genuine concern, providers need to have a heart-to-heart discussion with their channel representatives and their managers. While most vendors deserve respect for their years of partner support, their channel providers merit the same consideration. A few personal assurances will typically go a lot further than a couple of supportive press release comments.

There is a lot to consider when your ISV partners consolidate, but hopefully this helps you to better understand the many areas of consideration. We’d love to hear your feedback on this topic. What other questions or concerns do you have about industry consolidation, and the impact on your own business?

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An Office Apps & Services MVP and Microsoft Regional Director, Christian Buckley is an internationally recognized author and speaker and runs the community-focused CollabTalk blog, podcast, and tweetjam series.

View all posts by Christian Buckley
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