The volume of mergers and acquisitions so far in 2013 represents a 10 percent increase over the same period in 2012, according to a recent webinar led by representatives from Citigroup and Deloitte Consulting.
That uptick in prevalence is attributed to the fact that businesses are seeking economies of scale – especially in this difficult economic climate. Mergers and acquisitions also include myriad other benefits, such as reduction in vendor time to market, a broader array of knowledge and expertise, and growth in share of market.
The last few years have seen a slew of large communications, web hosting and IT service companies acquire other businesses in order to bolster their hosting properties. Rather than compete against one another, these companies decided that combining their forces was the more profitable and effective tactic.
In 2011, for example, Verizon’s $1.4 billion purchase of Terremark sent a clear message that telephony companies were willing to invest in hosting, according to Tom Millitzer, President of NCC International. One logical conclusion that could be drawn from such an investment is that the hosting market is ripe for the picking and will continue to grow as decision-makers realize the benefits of harnessing the power of the cloud.
Managed Service Providers
When it comes to the managed service provider (MSP) space, the rate of mergers and acquisitions has been wholly inconsistent over the past decade. One reason for this is the fact that when companies decide to outsource their IT needs, they expect to have a certain level of hands-on care from their MSP. If MSPs were to grow into industry juggernauts, it’s more than likely that they would lose that personal touch, and customers might decide their computing infrastructure was vulnerable as a result of the perceived decrease in attention.
With that in mind, it’s important to note that there still have been some significant acquisitions in the space, with IBM purchasing SoftLayer, and CenturyLink buying Savvis. With IBM’s purchase, the company acquired more than 20,000 customers scattered across 140 countries using SoftLayer’s cloud computing infrastructure. Such a move allows IBM to broaden its cloud portfolio offerings for both SMBs and enterprise. CenturyLink’s $2.5 billion acquisition of Savvis further reinforces the notion that industry juggernauts understand the future lies in the cloud with managed services.
The industry’s major players certainly have the wallets to afford those kinds of acquisitions, but such is not the case for all managed service providers. An uncertain tax future has created an environment where an uncharacteristically high percentage of MSPs are open to selling their businesses. Companies are increasingly conducting business across state lines and international borders, which makes it hard to plan for the ever-changing tax implications such businesses have. In 2012, the MSPAlliance noted that there was an increase in MSPs preparing their businesses for sale for precisely this reason.
Still, the future for MSPs remains bright. According to recent research, the market for managed services will increase at a compound annual growth rate of 12.4 percent each year through 2018. Furthermore, Gartner predicts the global outsourcing market will reach $288 billion this year. As long as there is money to be made and efficiency to be realized, one can expect mergers and acquisitions in this industry to continue.