Record-Setting M&A Pace: Advantageous or a Detriment to Channel?

M&A activity among partner businesses is on pace to be greater this year than in 2021 — and for that matter, in history. Anecdotally speaking, the inboxes at Channel Futures are full of announcements of multimillion dollar deals, and many of those are funded by private equity. And according to the top channel execs we’ve interviewed for this story, our editorial intuition may be correct: The activity in 2022 could well out pace last year’s. As businesses consolidate, they can innovate more in areas such as cloud, security, data and artificial intelligence. This can fuel further growth and financial gains.

However, understanding the influx of M&A activity among partner businesses means putting it into context globally.

The Big Picture

It’s not just solution providers experiencing rapid M&A expansion. The third quarter of 2021 was the highest on record for global M&A value. It reached $4.28 trillion in the first nine months of the year alone. For context, the previous all-time annual record was $3.96 trillion set in 2015. By the fourth quarter of 2021, M&A and related activity surpassed $5 trillion, the first time on record.

The majority of deals in 2021 were found in the technology, financial services, industrials and energy sectors. The deals were led primarily by corporates, private equity and SPACs, or special purpose acquisition companies. The massive uptick was aided by monetary policies and certain financial conditions, including low interest rates, making M&As more favorable. Also, many players put off large transactions in 2020 due to the strain of the pandemic, but were ready to strike in 2021. According to international law firm Case,” lenders were in a better position to assess the resilience of businesses after 18 months of the pandemic and were looking for a home. They had a greater degree of comfort identifying the right credits and put their money to work.”

It also appears tech giants might have set the pace for smaller technology companies’ M&A actions. CNBC reports that Microsoft, Amazon and Alphabet “announced more deals in 2021 than any other year in the past decade.” This may be because they are undeterred by potential legal action that would block these acquisitions.

The Future

As for how this activity is affecting the channel, we spoke to eight experts representing MSPs, agents, resellers, vendors and cloud service providers to gauge their reactions to the dramatic increase of M&A deals. Channel Futures paid particular attention to how the surge of M&As is affecting MSPs. That industry may be experiencing the greatest number of deals within the channel.

By the end of this decade, seven out of 10 small IT shops will outsource some, or all, of their IT to MSPs. So says Kaseya CEO Fred Voccola. This opens a market about twice as large as the market they currently serve. Expect to see lots of consolidation because, with MSPs, economies of scale can be obtained through acquisitions. Larger MSPs have a typically higher growth rate and higher profit margin than smaller MSPs. This is not the case for most industries, the experts said.

Check out our slideshow above to read more of the dialogue from the experts.