3. Private equity-backed M&A hits the skids
Impact rating: 8/10
As these seven deals go to show, private equity-backed channel M&A didn’t completely dry up in 2023.
But activity levels were well down on the previous five years, when PE houses including LDC, Beech Tree, Horizon Capital, BGF and August Equity made multiple platform investments in the sector.
High interest rates were partly to blame.
In October, Canalys predicted that global channel M&A will be down 60% in 2023 as the PE houses that drove high deal rates in recent years pulled in their horns.
“The growth in M&A activity over the last few years has been driven by private equity investors,” Canalys analyst Sheena Wee said at Canalys Forum in Barcelona.
“But in an era of high interest rates… private equity has slowed their investments in the channel.”
This followed warnings from Canalys CEO Steve Brazier earlier in the day that it wouldn’t take much for valuations to fall and land “the PE business in trouble”.
Will we see PE-backed M&A bounce back in 2024?
With most viable UK midmarket MSP targets now PE-backed, don’t count on it, Venture Corporate Finance Managing Director Gary Smith told IT Channel Oxygen this month.
“The amount of businesses of a platform size in the UK is dwindling,” he said.
“The ability for a private equity firm to find a decent platform is a lot less, and the general sentiment of the medium to larger-sized IT MSP businesses is probably more towards a trade sale.”
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