Managed services sector should brace for more PE activity, MSP Transform attendees told

Flow Transform's Etienne Greeff believes more companies are likely to sell up as a recession looms

Flow Transform's CEO has predicted there will be more private equity activity in the MSP channel next year amid difficult economic times.

Etienne Greeff believes more companies are likely to sell up as a recession looms, with Goldman Sachs predicting the UK's GDP will fall by around one per cent through mid-2023.

But he feels that private equity firms can "thrive" in a high-interest and inflationary world, which in turn could result in more transactions next year.

According to this year's CRN VAR 500, over a quarter of the UK's top 400 channel partners are now private equity backed following an influx of PE money into the sector.

BGF backed seven of the top 400, with LDC and Horizon Capital backing five of the top 400 apiece and August Equity, Beech Tree, Livingbridge and Inflexion each backing three.

How will M&A activity look next year?

"In terms of private equity, I think in a high-interest world, an inflationary world, private equity as an investment class actually thrives in that kind of world," Greeff said at CRN MSP Transform on Thursday.

"I think what you're going to see, especially next year, I think there will be more transactions, I think there will be bigger transactions.

"I also think that in times of recession, there may be a little bit more distress and companies are maybe more likely to sell because of uncertainty about the future.

"So, I think there's more deals available for them."

Cybersecurity businesses becoming more popular

Greeff also explained that cybersecurity businesses are very popular in the M&A space, with it having become "mainstream".

Recent acquisitions in the space include Babble buying activereach as well as Infinigate acquiring cybersecurity distributor Starlink.

"I speak to quite a few people in this space and there's huge interest in consolidation in cybersecurity. There are a few sizable players that will come to market later in the year, Greeff said.

And he also felt that more M&A activity is shifting towards service providers in the channel.

He added: "Most service providers become larger and with a lot more activity in that side, it means that a lot of the tech providers need to become more important to their service providers, to the channel partners.

"As a consequence, I think that's why you see a lot of consolidation on the service provider market."

Greeff also offered his own advice about striking deals, believing there is a "temptation to focus on the sexy businesses".

He added: "In reality, most of the time the successful M&A transactions are the companies that complement what you do, that maybe takes you in an area that you've not been, maybe adds another territory to your business, and may have a very direct impact on profit."