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If you are a member of Axial you have certainly noticed a deluge of Managed Service Provider (MSP) firms hitting the market this past year. MSPs that specialize in
cybersecurity, or MSSPs (managed SECURITY service providers) in particular are fetching some of the highest multiples given the massive growth tailwinds in the industry and their unique scalability (did somebody say 70%+ gross margins on a services business??)
MSPs are outsourced IT integrators, and they hold the keys the IT castle for most Small businesses. MSPs are typically contracted by business that are too small to staff internal IT teams, and large enough to need significant IT . MSSPs often work with these smaller businesses, as well as larger ones, to provide them with an outsourced “security operations center.” With ransomware attacks mounting at an alarming rate, MSSPs and cyber security focused MSPs are growing like crazy.
Want to understand what an MSP is? I’ll let experts get you up to speed:
A managed service provider (MSP) is a third-party company that remotely manages a customer's information technology (IT) infrastructure and end-user systems. Small and medium-sized businesses (SMBs), nonprofits and government agencies hire MSPs to perform a defined set of day-to-day management services. These services may include network and infrastructure management, security and monitoring.
MSPs often handle management services on a daily basis so customer organizations can focus on improving their services without worrying about extended system downtimes or service interruptions.
While some MSPs may specialize in specific segments of IT, such as data storage, others focus on specific vertical markets, such as legal, financial services, healthcare or manufacturing. Managed security service providers, for instance, offer specialized types of services, such as remote firewall administration and other security-as-a-service offerings. Managed print service providers maintain printers and supply consumables. Often, MSPs perform their tasks remotely over the internet.
Inside the world of MSPs Cybersecurity is king. As more companies are threatened with ransomware and DDoS attacks Cyber security has never been more important. This is no longer an enterprise problem either, SMB owners are suffering from these hacks as well, especially since COVID has moved these companies remote. And even basic cyber hacks can be catastrophic for small businesses, especially those that don’t have cyber insurance.
Both the cybersecurity and MSP customer base are growing at a very high CAGR, and the amount of rollups and large acquisitions are growing as well. However there is a smaller subset of MSP and cybersecurity solution providers that aren’t large enough for strategic buyers, and that is where today’s Sponsors are looking to execute their game plan.
CYBER SECURITY AND MSP ROLLUP
Firm & Focus: Holdco structure executing a “rollup” strategy in the hyper fragmented cybersecurity and IT services space
Makes control investments in profitable lower/mid-market cybersecurity and IT services businesses ($5M-$25M total enterprise value) where value opportunities are plentiful and bid competition from strategics and financial sponsors is minimal
Two deals under LOI at below-market multiple and favorable deal structures
Targeting 4-7 investments over the next 3-4 years
Opportunity:
Low-risk exposure to high growth cyber industry: By investing in multiple profitable, sticky, “picks and shovels” service providers at reasonable multiples and at lower risk of technology disruption than software vendors, the firm offers exposure to high-growth market and potential for high returns but with limited downside
Experience & Track Record: Experience executing this playbook: one partner was a founding member of a cybersecurity-focused PE/growth fund that recently exited several successful investments
Advisor & Operator Network: Backed by a deep network of advisors and operators with experience in the technology, IT, and cybersecurity
Fund Size: $35M, closing in 3-4 weeks, 80% closed
Minimum: $500K minimum investment
If you want to get access to this opportunity, email me at andrew@blinkholdings.com or reply to this email.
Are you a sponsor and want to share your deals with almost 800 potential investors? Shoot me an email:
Andrew@blinkholdings.com
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