The coronavirus pandemic will likely greatly reduce merger-and-acquisition activity while increase remote work and remote IT certification exams, industry insiders said.
Managed service providers have seen high levels of mergers-and-acquisitions activity over the past couple of years and even into early 2020. Coronavirus fallout, however, has put MSP acquisitions on hold and one M&A expert said it will have long-term consequences for company valuations.
Martin Wolf, president of Martinwolf, an M&A advisory firm in Scottsdale, Ariz., said the pandemic will result in a temporary pause, but he added the hiatus “will last longer than most people think.” The multiples of public companies will drop for a period of time and service providers compelled to sell at lower valuations will have a ripple effect across the market, establishing comparable transactions that will influence the sales price for similar companies.
Wolf said he anticipates “lots of consolidation” on the other side of the coronavirus crisis, as severely weakened companies look for buyers. The market will rebound, but not instantly.
“It takes quite some time for the market to reach equilibrium,” he said, citing previous market collapses such as the bursting of the dot-com bubble and the Great Recession from 2007 to 2009.
MSPs, at least those that have made recurring revenue a priority, may fare better than channel companies dependent on projects that could be deferred or canceled. “The MSP world is better off than companies that rely on projects,” Wolf said.
That said, MSPs face plenty of challenges ahead, especially service providers heavily concentrated in hard-hit industries such as transportation and energy. MSPs that count airlines or oil companies among their top clients may have trouble retaining customers or receiving payment from companies teetering on the edge of bankruptcy, Wolf noted.
The typical MSP may be equipped to deal with a severe business interruption for a couple of months, Wolf said. Beyond that, a thinly capitalized company may hit the wall. Service providers that can’t retain customers or run into collections issues may not be able to pay their personnel, Wolf added.
But he said MSPs that come out of the current crisis intact — whether through luck or planning — will emerge “a lot stronger and a lot more dominant.”
Accenture cites deal potential, remote shift
Accenture conducted 17 transactions in the first half of the company’s 2020 fiscal year, which ended Feb. 29. The second half, which will conclude Aug. 31, could feature more deals. During Accenture’s second-quarter earnings call, CFO KC McClure said the company has the ability to invest $500 million in new acquisitions “should those opportunities arise.”
Accenture, at $43 billion in annual revenue, is clearly operating in a different tier when it comes to the ability to acquire companies. But it does share characteristics with smaller service providers. The company, like MSPs and other channel partners, has reported customer demand for remote work offerings in light of the pandemic.
Accenture CEO Julie Sweet, also speaking during the second-quarter earnings call, said clients are “adjusting to the need to have remote working, which for many of our clients is very new.” In one case, Accenture is partnering with Microsoft to get a customer’s 25,000-employee workforce on Teams over a five-day span.
Accenture, a large Teams user in its own right, is performing more of its client work remotely. Sweet said clients who wouldn’t have permitted Accenture to work remotely in the past are now giving the company permission to do so.
CompTIA to offer at-home certification testing
In addition, CompTIA said it has extended the expiration data on certification exam vouchers: CompTIA exam vouchers with an original expiration date between March 17, 2020, and April 30, 2020, will be valid through June 30, 2020. CompTIA will provide remote testing and voucher updates on its website.
In a statement, Todd Thibodeaux, president and CEO of CompTIA, said the coronavirus pandemic and its associated disruptions “have made it impractical, if not impossible, for the foreseeable future for the large majority of individuals to take their exams at a brick-and-mortar school or test center.”―SearchITChannel