Stick with my and you'll learn why second-generation MSPs (those focused on a specific technical or vertical market niche) remain in high demand. And third-generation MSPs? Well, they've got about a two-year window to make some serious money amid the cloud services land grab. Here's why.
First-generation MSPs: The basics of managed services -- remote monitoring and management of PCs, laptops and servers -- continues to generate bread-and-butter revenues for MSPs. That market isn't going away because SMB customers don't want to hire their own IT support staffs anymore. But if you check the MSPmentor 501 list, those remote management services are a mere starting point.
Yes, first-generation MSPs are still getting acquired. But they aren't demanding big multiples. The typical range, I believe, is down to 1X to 2.5X EBITDA (earnings before interest, taxes, depreciation and amortization).
Second-generation MSPs: Take a look at All Covered's most recent acquisitions, and I think the deals have less to do with regional reach and more to do with vertical market or technical expertise. All Covered is going vertical (health care, education, etc.) while also drilling down far more deeply on specific technologies (desktop as a service).
Third-generation MSPs: I suspect 2 percent to 5 percent of MSPs now have their own in-house intellectual property. Here's a prime example: Avanade, a top-performing MSP, now owns its own cloud-monitoring tool. I'm not suggesting that all MSPs will develop their own software. But I'm definitely seeing a trend toward top MSPs having some sort of in-house secret sauce that rivals can't emulate.
When it's time to pursue a potential exit, that intellectual property can attract a price premium...