Julian Riedlbauer: How MSPs and distributors can win the hearts and minds of investors

Ahead of CRN's XChange EMEA conference, M&A expert Julian Riedlbauer sheds light on the investor market. Although the framework conditions have become more difficult, investors continue to invest in IT service providers and distributors.

Even growth optimists have wavered in the face of waves of layoffs in the IT industry, with hundreds of thousands of job cuts in recent months.

Volatile market indices and tech stock prices paint a picture of continued volatility. The 12-month chart of the Nasdaq 100 shows a fluctuation range of over 40 per cent.

The choppy waters of the capital markets don't quite align with reports about groundbreaking tech innovations, above all in AI. In this area of tension, investors need to rethink their investment strategy.

The good news is that investors are not discussing the "if", but rather the "when", and at what price they will continue to buy into the IT sector.

"The outlook is improving, even though there was still a decline in deal volumes in Q2 in the digital services area," says Julian Riedlbauer, partner and advisor at M&A specialist GP Bullhound.

In its Digital Services Sector report, which covers agencies, consulting firms and MSPs, GP Bullhound measures the pulse of private equity and strategic investors.

In the case of the latter investor group, which includes the highly acquisitive German reseller Bechtle, Accenture is once again the most active strategic buyer in Q2.

"The past few months have been a rollercoaster ride, but now the global economy seems to be stabilising: the global business climate has recovered in the second quarter of 2023.

Especially in the M&A and private equity buyout market as well as in private placements, things are slowly but surely looking up again. The tech industry is now officially in a bull market since the lows in December. So, the prospects are promising," he concludes.

According to Riedlbauer, transactions are constantly being realised in the areas of digital transformation consulting, software development, outsourcing and IT consulting.

He cites the sale of Cloudflight to PE investor Partners Group as a current example. Mindcurv, advised by GP Bullhound, and Diva-e "have also been supported by private equity investors in consolidating the market."

There is still "a certain reluctance to invest" that Riedlbauer notes will be resolved. "Private equity investors have placed very large funds with their LP investors in previous years, so they continue to look for investment opportunities on an ongoing basis."

Experience with M&A in the channel

GP Bullhound has made a name for itself as an M&A partner in the channel since Infinigate was sold to HIG Capital, later acquired Acmeo and was later bought out by investor Bridgepoint.

"Exclusive Networks is the very well-known template in this security VAD segment, but smaller companies like EbertLang also attract the attention and investment of private equity shops," says Riedlbauer.

According to Riedlbauer, channel players tend to be transparent and profitable - a catch for a PE investor.

"There are enough opportunities for consolidation, partly on an international or even global level. The combination of profitable growth and buy-and-build potential is highly appreciated by private equity investors and family offices."

This is even true "in more challenging times than at the moment," says the former IT specialist dealer.

Julian Riedlbauer will delve deeper into the M&A market in his keynote at Xchange EMEA on 10-11 October in Amsterdam . Secure your complimentary place here.