Consolidation and growth are key MSP market trends

The rise of the managed service provider (MSP) model has caught the eye of many financial backers due to its recurring revenues and popularity with customers.

As a result, there has been a great deal of research tracking the rise of MSP trading volumes and the percentage increases in activity compared with normal value-added resellers (VARs).

The first MSP market update from Drake Star will add to that growing pile of market data, looking at the prospects of the channel from a tech investment perspective.

Looking at the MSP world through a financial lens, there are clear trends of consolidation and increasing value.

Drake Star found that there was a 54% increase in mergers and acquisitions – 37 across the US and Europe – in the managed services market in the fourth quarter 2023, compared with the previous quarter.

Most of the moves could be explained by the desire of channel players to acquire more depth to expand their service offerings.

Drake Star used Iomart as an example of what that consolidation had looked like in the UK, with the MSP’s acquisition of Accesspoint Technologies in December adding more services depth for the firm in the legal sector.

Most of the buying was driven by larger MSPs, with some of the serial acquirers closing at least four deals in the past couple of years.

Crucially, from a financial point of view, the entire MSP market was growing with some positive momentum.

Drake Star estimated the global MSP market was worth $283bn at the end of last year and should reach $552bn by 2032, driven by a steady annual compound growth rate.

There were various reasons why customers were continuing to turn towards managed service partners, helping to drive that growth.

The MSP market update highlighted a growing need for support as complexity increases, particularly with the ongoing ambition of many customers to unlock the benefits of digital transformation.

The channel was still being looked to as a means of delivering cost efficiencies, making better use of internal resources by handing off the burden to an MSP and using the subscription model that provided more predictability.

Finally, many customers saw managed service providers as the answer when it came to dealing with security challenges. The channel has evolved to meet that pressure, with many able to provide a security operations centre and the 24/7 support users are looking for.

“The rising incidence of cyber security threats is fuelling the need for MSPs, which provide specialised solutions,” the report stated.

Drake Star found that customers were attracted to flexibility that an MSP could bring to the table. Using a channel partner allows users to react quickly to changing market conditions and take advantage of opportunities, without being tied to a fixed infrastructure.