Progress Partners Report: MSPs See Surging Demand Amid Economic Uncertainty
Amid layoffs, organizations are turning to MSPs for support.
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According to Progress Partners, during the fourth quarter:
While global spending on IT and business services declined, managed services annual contract value (ACV) advanced 2% to a record $9.3 billion.
Six mega-deals (contracts with ACV of $100 million or more) were signed during the quarter.
Managed services ACV is increasing for a few reasons, said Progress Partners’ Parag Sheth.
“More and more enterprises are outsourcing their IT services to MSPs to get the best industry expertise and committed outcomes,” he said. “For this, they are willing to pay more.”
In addition, the shortage of human capital and impact of macro-level inflation have made it feasible for MSPs to increase their prices, Sheth said.
The increase in MSP contracts during the fourth quarter likely resulted due to the constraints around finding the right human capital for needed roles, Sheth said. Other areas include digital transformation and new technologies.
In addition, particular industries/sectors are driving growth in MSP contracts, he said.
“Growth for IT services is strong across sectors, but specific sectors such as health care, financial technology and large enterprises are showing strong growth, Sheth said.
As enterprises push toward the digital future in response to economic turmoil, the demand for IT in 2023 is expected to remain strong, according to Progress Partners.
Revenue in the IT managed services market is projected to reach $1.2 trillion in 2023. The market’s largest segment is IT outsourcing, with a projected market volume of more than $430 billion this year.
Expect revenue to sport a compound annual growth rate (CAGR) of almost 6.9%, resulting in a market volume of $1.6 trillion by 2027.
Demand for cloud-based solutions has increased dramatically since the pandemic, Sheth said.
“We expect to see continued growth throughout 2023 driven by increased demand and increased complexity,” he said. “Over the next few years, cloud IT services will become the dominant model for delivering and maintaining enterprise IT resources, including, software, platforms and tools for application developers.”
Enterprises will accelerate efficiency-driven digital investments and will use digital technology to reshape revenue streams.
Sectors across IT have grown significantly with an emphasis on consolidation, Sheth said.
“The IT services market is fragmented, which leads toward significant M&A opportunities,” he said. “Going forward, we expect the M&A environment to remain healthy with increased focus on consolidation.”
Sectors across IT have grown significantly with an emphasis on consolidation, Sheth said.
“The IT services market is fragmented, which leads toward significant M&A opportunities,” he said. “Going forward, we expect the M&A environment to remain healthy with increased focus on consolidation.”
A new Progress Partners report shows MSPs not only aren’t being negatively impacted by economic uncertainty, but are benefitting from it.
More than 655 IT/MSP contracts were signed in the fourth quarter of 2022, which is up 14% year over year. That’s according to the new fourth quarter MSP report released by Parag Sheth, managing director at Progress Partners. It’s a corporate advisory firm that works with buyers and sellers of emerging growth companies to complete M&A or private placement transactions.
Progress Partners’ Parag Sheth
“The MSPs are yet to see an impact from economic uncertainty,” he said. “If anything, they are seeing growth because more and more organizations, especially technology companies, are laying off staff. They are turning to MSPs for support.”
Progress Partners anticipates continued growth in demand for IT services this quarter.
“The ongoing cuts in staff coupled with the bumpy economic environment means the services from IT firms will continue to be in demand,” Sheth said.
IT/MSP should be a sector that continues to transact where others may struggle through 2023, he said.
Continuous technology upgrade cycles, driven by constant innovation, digital transformation and talent acquisition, will remain on the agenda for well-capitalized companies.
“We therefore believe growth agendas of large corporates and lower valuations will drive M&A activity in the sector, Sheth said.
See our slideshow above for key findings from the Progress Partners report.
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