13 Jan The Future of Tech Services and M&A: Predictions for 2025

Matt, Mike and Ryan from Revenue Rocket discuss predictions for the tech services and M&A space in 2025, including continued consolidation in the MSP market, increased cross-border acquisitions, and the growing importance of AI and channel partner ecosystems, all of which are expected to drive significant activity and opportunities in the industry.
Most impactful trends forecasted to hit the tech-enabled services sector in 2025.
Revenue Rocket Predictions for 2025
- MSP targets continue to get multiple offers as consolidation continues
- Rise in custom app dev space: custom app dev, near shore, and transformation projects continue
- Prepare for the unexpected with new policies
- The need for security everywhere will continue growth in cybersecurity M&A
- Global M&A will continue
- Software firms will seek partners to consolidate (behind closed doors)
- Aging tech founders who started businesses 15-25 years ago will look toward exits or exit planning
- AI & automation will move from magic to deployment, and a search for talent will drive M&A
- Multiples will increase for niche markets
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EPISODE TRANSCRIPT
Mike Harvath 00:06
Hello and welcome to this week’s Shoot the Moon podcast, podcasting live and direct from Revenue Rocket world headquarters in Bloomington, Minnesota. Like to wish everyone a happy new year. Our first podcast of 2025 is on tap with me today are my partners, Matt Lockhart and Ryan Barnett. Welcome guys
Matt Lockhart 00:28
And happy new year. We’re off and running, excited for the year ahead and excited for my home team, Vikings, run into the playoffs. So SKOL Vikings. And speaking of 2025 Ryan, you’ve come up with an awesome topic.
Ryan Barnett 00:47
Yeah. Hey, thanks, Mike and Matt joining us from the New Year wrapping up. Oh, we had over finished over 200 podcasts between the last few years, and we’re going to keep it going here in 2025 and what’s a better way to kick off 2025 than to throw some predictions out there for the year. So what we’re going to focus on are just what Revenue Rocket and what Mike, Matt and myself, what do we think is going to happen here in the world of tech services and tech services, M&A so we’ve got a few topics we want to discuss everywhere, from AI and automation to channel partners to MSPs and and where multiples will land. And so Mike Matt, let’s have a great conversation moving things forward. So Mike, why don’t you get started with just what has been a hot topic in 2024 which is the consolidation of MSPs and managed service providers across the United States and even globally, we’re starting to see some acquisitions. Continues to be hot, and as we were just discussing, companies are getting offers that are oftentimes multiple offers. And it’s, it’s a, it’s still a rocket hot market for MSPs. Why do you think that is? And do you think we’ll continue in 2024 continue in 2025
Mike Harvath 02:05
Well, as we think about that, you know, sort of pillar of our work, you know, guys know we work in the MSP space, and buys MSPs on their M&A, you know, work. And, you know, we certainly see additional consolidation velocity in the space we saw that through 2024 we’re certainly expecting that in 2025 we’re also starting to see a little bit of scarcity of inventory, of sellers that are prepared to get in and engage on a conversation. And the combination of accelerated interest by buyers and fewer targets by sellers certainly means that that’s driving valuations up. No theory, theory of scarcity. I think it’s also harder to to get ones done. You know you need more. You need an advisor who can do outreach for you that can meaningfully assist you in your efforts to acquire companies. If you’re doing that, and if you’re a seller, you’re in a pretty good spot. It’s been a seller’s market for the last few years, but certainly if you’re thinking about a recap or a sale, you’re an MSP 2025. Will be a great year to do it.
Ryan Barnett 03:25
Yeah, thanks for getting us going. I agree with you that there’s and we’re seeing this within demand, just when we’re calling out to the buy side the conversations with fires, it is processes and talks already started. So if you’re on a buy side initiative, working with the right people to make sure you got the right list in place and the right outreach is really critical to making sure that you’ve got the right plans, and also making sure that when you’re thinking about those acquisitions, that they’re strategic in nature, and help filling the gaps that you need, as well as increasing the revenue and in reach of your firm. So great, great. We agree with this. Could just go on and Matt, if we think about a little bit of switching gears, and some of the pillars we talk about is that custom app dev space, do you sense the same that’s going in custom app dev near shore, transformational type projects? You know,
Matt Lockhart 04:18
it’s interesting. Ryan, I think that there’s actually a few different kind of micro factors, if you will, that are going to have an impact in that, in that app dev, you know. And when we say app dev, think cloud, cloud modernization, app modernization, even data right and enterprise data layers and all of that. And so, you know, there’s a few things that I think are going to drive an increased amount of activity in this space, one being that the space in general is just going to be healthier capital expenditures by by enterprises and. And upper middle market firms have been down for the past two years. And, you know, there’s a few reasons why a they, you know, capital expenditures were, you know, significantly up during COVID. And so I think there was some spend exhaustion, you know, obviously there was a little bit of economic wobbling, a little bit of economic uncertainty, that drove a decrease in capital expenditures. But I think that it’s, it’s pretty clear that 2025, is going to be an increase for capital expenditures, which means that, you know, those, those app dev, cloud modernization firms are going to have healthier pipelines, have healthier booking ratios, etc, etc, which, you know, enables those firms to be more attractive on the market. And they know that, right? You know, nobody goes to market when they’re, when they’re, you know, not feeling real confident in in their future. And so I think that’s one area. Another area is, is, you know, we do expect an increase in cross border acquisitions, and you know, we’ve seen some of that, and we think that there’s going to be even more cross border acquisitions. And, you know, for firms from EMEA, you know, for firms from Asia, Pac looking at firms in the United States as a, you know, call it a storefront or a foundational platform to enter into the United States, custom app dev firms are going to be super attractive in that space. And then lastly, I know we’ll talk a little bit more about AI, but the foundation of AI is, you know, real strong, good cloud enablement, real strong, good data infrastructure. And then, you know, the ability for the apps to be modernized that create the data that can be used by next generation AI engine. So, yeah, we, I think, I think the that that market is going to be quite a bit more hot than it has been, you know, which is exciting.
Ryan Barnett 07:25
I think you nailed it. Those underlining trends are absolutely critical, as as data security AI all come together, and digital transformation starts to get some real teeth, and budgets renew. I think it’s a great year for companies to start consolidating in that space. And great opportunity for buyers. There’s a little less competition in this space for firms to get into it from a financial perspective. So good opportunity for buyers, as you’re looking into space to do something up then outside of the MSP world, another critical pillar that we work with are all lovingly. We call them channel partners. So think of your your companies are implementing solutions from other software, SaaS type vendors or or even hardware resellers and cyber security resellers. Mike, what do you think the future of channel driven companies will happen when it comes to M&A 2025?
Mike Harvath 08:32
Well, you know, there continues to be consolidation there as well. There’s quite a bit of interest, particularly in the cyber space. And really all areas of what we’ll call channel partner implementers of tech vendors want their partners to be bigger, to have more reach. Certainly, they want to simplify their channel management initiatives. And that’s been, that’s been a drum beat for, you know, channel partner, consolidation for a long time, I would say that’s coming to, you know, certainly continuing to accelerate, if not, coming to a head here in 2025 as there seems to be a lot those channels, and in some cases, are Pretty fragmented, and we know the major vendors in particular, are advising their partners that they need to be part of something bigger if they’re small and encouraging consolidation. In some cases, the vendors themselves are consolidating their channels. That will continue, I think, to be a trend on either funding or, you know, providing funding and support of channel partner consolidation. That’s certainly something we’ve seen come and go over the years with major vendors like Microsoft and others, and I would fully expect that we’ll see that in 2025. So of the pillars we work in, and has been discussed, we think that all three areas are going to be pretty hot in 2025 also, you know, fueled by the tailwinds of generally a pretty good economy. I think, you know, we’ve all been waiting for the shoe to fall on the economy, and it hasn’t, we probably can argue that we’ve had a soft landing. And you know, now we’re coming into a period where we’re going to have some growth that, coupled with just the micro market dynamics in each of these areas, I think portend very, very active 2025 for M and A
Matt Lockhart 10:41
one other area I was thinking about with the channel partner aspect. And, you know, these are, you know, traditional, you know, implementers, is, is, I think, one other area that is going to fuel some growth in the market is firms that need to address a gap in their capabilities, right? You know, they’ve got a strong business, but they they need to extend their capabilities into new markets, to address existing customers, to find additional customers, and those that channel partner implementation market is one of those areas that I think is super ripe for firms to be able to bring new capabilities to market that their customers are looking for. So I agree that that’s, you know, that space again is going to be, there’s going to be an increase.
Ryan Barnett 11:39
Yeah, I think one other trend here is happening is we look at software vendors in general, and they were developing platforms. And if you look back at maybe even specific marketing platform space, the firms first thought out do to create a great marketing platform, and all companies would come to your platform, and that was against a race of best of breed type solutions. And if, if you look at this, this happens in other markets, not just marketing technology, but these platforms became less monolithic and started to become more open, best of breed solutions pop up and they get adopted. And I think the the key thing that it will happen for IT services firms is that as smaller software platforms are out there and they are working with other platforms, they’re going to have to talk together. And so I think there is going to see an increase in just companies that are able to put some of that custom app dev experience to to work with the channel related partners, and the integration platforms are starting will start to get some attention. And those platforms don’t, don’t really work themselves. Do you have to feed them with the right data and the right information and they have, and that’s not done necessarily in house by someone who was running the system. So I think that would be a nice boon to companies that are in that integration related space to help fuel things. And in order to do that right, you’re going to see some niche market acquisitions of firms that are really specialized in one or two? Yeah, maybe the right word is off brand technologies tier two, maybe tier three. Type technologies are really maybe best of breed, but not necessarily top market share, and that’s a good, great opportunity for companies that are looking to do a bit more work in that space. Pushing gears a little bit here, Matt, you mentioned global M&A Just this week. We saw a few deals happen. Even today, HHV acquiring a Canadian company, acquisitive. We saw worldwide technologies buying soft space, you’re starting to see global M&A be a bigger thing. Matt, maybe help me understand why are why again, are people looking at that, that global experience, and do you think that’s something that will continue in 2025, and do we have an experience in that space that you could shed some light on?
Matt Lockhart 14:20
Well, yeah. I mean, what we can speak most and probably most relevant for our our listeners. Although we’ve done deals across how many companies Mike, how many company or countries have we’ve done deals in?
Mike Harvath 14:36
Over 30 I think we’re at 31 now.
Matt Lockhart 14:38
Yeah, amazing. But obviously most of what we do is in the North American market, and most of that is in the United in the US market. So in thinking about that again, we expect it to be a better economic better economic conditions, better. Been conditions for tech companies, and obviously the number one market is, is the United States. And so people who have yet to enter into the US market, I think, are wisely looking at acquisitions as the most viable path to get into the US market. You know, opening up a storefront and trying to do it Greenfield is is difficult, and it’s, it takes time and and Time isn’t on the side of firms. And so I think that that’s, I think that’s one big driver now for us, firms continuing to spread out their geographic reach, be it in Latin America or in Europe or in Asia. Pac I think that that will continue as well. And then I also, and we see this from some of our clients, who are recognizing that they, from the US perspective, need to start to think longer term about expanding their addressable market. And so US firms are looking at European firms as a means to to simply expand their addressable market. And so I think there’s a number of factors. I think that, in addition, the world continues to be more and more virtual. And while location certainly does matter, where your talent is doesn’t matter as much as it used to. And then there’s always the, you know, the simple labor arbitrage cost factors as well. And so, you know, it is a global market, and I think that more people, you know, want to have more options by having capabilities across different regions.
Ryan Barnett 17:00
Yeah, I think you absolutely nailed it, Matt and again, shifting gears a little bit, Mike, as we think about the ecosystem of technology partners, and you start to look at founding dates, you got a huge number of firms that started kind of pre.com boost, kind of all going into y 2k and even survival through y 2k from that kind of 98 through 2007 was a huge time for founding technology related companies. And fast forward, that’s, you know, 2530 years goes by pretty quick, and you’ve got this also aligning a bit with just older people who are perhaps looking for an accident. Mike, do you think there’s going to be more firms coming to market who have simply gotten to an age where it’s it’s prudent to either start planning for now or the future?
Mike Harvath 18:03
Well, I think that’s a big area of companies. Are quite a few tech companies. IT services. Companies are in that category, right? And, I mean, you know, there’s we talk to, you know, lots of folks every day, and we hear from many of those people who are kind of, if you want to use the term aging out, or beginning to think about doing transactions, and that is a driving factor, they’re realizing they can’t do this forever, that they need to have a plan, that they need to either begin to put together what I’ll call a Long Tail plan, where you know, you begin to take a hard look at your business and and begin to optimize it for, you know, both growth and profit, to be able to, you know, be more interesting to a buyer, if you will. There’s some that have already done that, and certainly are now beginning to take calls from interested parties. There’s no shortage of of buyer opportunities. The question is, you gotta you have, or if you’re a seller, there’s no shortage of buyers. Bigger question is, you gotta be able to sort and maximize and qualify those buyers, because there’s certainly a lot of tire kickers out there. And in the end, I think, you know, we’re going to see in 2025, and beyond, a lot of folks, quote, unquote, aging out or bringing firms to market where they just didn’t take these calls before. Now, we’ve heard interesting comments from sellers recently, like they want to spend more time fishing. They want to focus more on, you know, maybe a collectible car collection, or cars that they’re working on, or whatever hobby it might be, could be golf, could be boating, could be anything, but spending more time with their family. You know, there’s a lot of drivers that people have as. Get to certain point in their life and they want to spend more of that time, and certainly by exiting their business, they would be able to do that.
Ryan Barnett 20:16
I agree, and I think that as people, as you start to look at this, and if you’re in that age bracket where a process starts, it’s, it’s, it’s, it’s a great time to to speak with an advisor. Look at your what your options could be. There are several options that are out there, and I think it can be powerful. Matt, this year, it seemed like there was a bit of a year of the carve out and and perhaps is maybe we’re just dealing with our own niche, but we’re seeing a few carve outs, and we’re seeing companies pair things down to really become focused. Do you think that trend will Is this a trend or just a little blip on the radar?
Matt Lockhart 21:01
Well, it’s interesting you say that I actually just read an article this week about that specifically, which is, you know, firms really understanding their their strength, where they win their their growth potential, because it’s, it’s what they do best, and And so sort of shying away from, you know, trying to be all things to all people. Now, as we talked about earlier, that goes both ways. If there’s adjacent capabilities, we think that there’s going to be some acquisition related to having capabilities that are strongly adjacent, but those capabilities that maybe have been developed that don’t have adjacency, where it’s harder for the organization to see organic growth, because they’re they’re really distinctly different offerings and distinctly different customers and buyers and the like. Then, then, yeah, I think that there, there will be continued carve outs. Now, do we think that that’s a major part of the market? I’m not so sure about that, but it, it does sort of follow in line with that strategic principle of of you know, understanding and building upon what you do best, building upon your specialization, which is something that we advise and strongly advocate for firms to be the very best at, something, whatever it is that they do, you know, really build that specialization?
Ryan Barnett 23:00
Yeah, one of the questions I got written down is, Will multiples increase for niche markets and Mike, I’d love to just kind of weave that in, if a carve out starts to become a way for a strategic company to really narrow in on one solution. What happens to the rest of that business when you start to to narrow in and and do you believe that valuations will increase for companies that have really nailed down in our philosophy that specialized, verticalized, productized approach to go to market strategy?
Mike Harvath 23:40
There’s no question that firms then are verticalized, command to premium. We know that. We see it, you know all the time in actual transactions. We know that the firms tend to be more profitable. They tend to grow faster. In part that’s because of eliminating or reducing competition and increasing their relevancy to their customer base. You know, everyone likes to work with a specialist. I think that’s an important thing, not just on the technical domain, but in the market domain. They like to have things that are easy to buy from a proven provider in their market, where they can have a high degree of confidence that that provider will be successful with them. And so there’s oftentimes a faster growth curve, higher profit, less, you know, less competition for those verticalized businesses. That makes them very interesting, and does drive multiples for all the obvious reasons, above and beyond just the baseline multiple, but also because it’s just a better business, right? It’s running better than it would be if it was a generalist, typically. Now that’s not always the case. I don’t it’s not a one. Size fits all world. There’s certain areas of the market where you know, unless you’re going to have a very broad geographic footprint, or the world where you know, verticalization may not make sense. So I don’t want to make it sound like you know this is the only way to go, but, but for most firms, it is a preferred path. And the short answer is, it absolutely drives up multiples compared to firms that are not
Ryan Barnett 25:28
verticalized. Yeah, no, makes total sense. And Matt, just one last question for you is switch gears yet one more time as we hit things all over the radar, and IT services, you mentioned AI, and perhaps generative AI, and we saw a big boom this year in just the adoption of it is what I noticed. Things have gone from almost magical to real. And what do you think that’s going to do throughout 2025 as we see firms starting to adopt AI and and can realize the true potential of AI. What’s going to happen the m&a landscape of the service providers that are helping out there?
Matt Lockhart 26:12
Yeah, well, it’s interesting, Ryan. I mean, we’re, let’s, we’re still kind of at the tip of the iceberg of this revolution, right? I think, to your point, adoption has absolutely increased now, you know, I think that that adoption is sort of on a platform basis, where firms are utilizing the platforms that are available on the marketplace, be it chat, GBT, be it, you know, co pilot, be it, you know, any number of things. And, and that’s good, right? They’re, they’re, they’re, they’re starting on the journey. But that, for most, they haven’t created what I would call sort of differentiated and or distinctly integrated AI capabilities based upon their vertical, their go to market, their customers, their data, right? And in a in sort of a deep and meaningful automated way, right? And so that that we think everybody knows that coming, and you know those that were our very first, they’re they’re already out there. And I think that people are recognizing that there’s some catch up to be done. Well, how do you catch up faster than anything. Well, you you go and acquire that capability. And so there is going to be, we know that the market is just increasing in value and will continue to increase, suit, probably for the next decade. And if you’re not in it and and you are a tech services firm, a tech product firm, shoot, even an enterprise that has built your own platforms, you’re going to be looking for that capability. And so in, you know, in some ways specific to this niche space, it’s like what we saw with the cloud, be it AWS or Microsoft or in the most competitive landscape of MSPs, some of it is simply going to be talent acquisition, capability acquisition in this space. And so, you know now, it’s one of those things that I just have to say, as you’re as you’re thinking about your buy side initiatives, and we’ve spoken about this a number of times, it’s something that you have to stick with, right? It’s not like, hey, hey. Now it’s, it’s January 3, and I’m going to jump in, and I’m going to go acquire a company, and I, you know, I’m going to have this firm in place by, you know, July. Yeah, that’s not really the case. Buy side is something that you have to work with. You have to plant your seeds. You have to stick with and and and it and it. And it takes some time. And, you know, to Mike’s point, in the MSP lands landscape, it’s going to probably take a little bit more time, because there’s just been quite a bit of consolidation in the AI space. Everybody is going to be after those firms. And so, you know, it could take some digging and some trolling and so, you know, think strategically, but also think long term as it pertains to buy side activity in this space.
Ryan Barnett 29:52
Very, very good insights, gentlemen. I appreciate you both hopping on here. Matt Mike, any closing predictions you want to get? Give our audience here.
Matt Lockhart 30:03
Boy, well I like to predict that the Vikings are going to win, but, you know, I’ve been burnt before, so I’m going to hold back on that one
Ryan Barnett 30:18
That’s safe to hold back on Matt, based on our history, but I’m I will at least wish them. Wish them. Well, yeah, exactly. Mike, before we turn out, I’ll just put the invite out there. We’re always looking for podcast topics, and as we go through and fill out our 2025 round up a podcast, please let us know if there’s something that you’re interested in, hit us up at info, at revenue rocket com, and thank you for being a listener and and we really, really appreciate it. And looking forward to a great 2025 Mike, why don’t you wrap us on up?
Mike Harvath 30:55
Yeah, sure. Will. Ryan, you asked what you know final thoughts. Be careful what you wish for this year. You might just make it a reality. It is going to be a very interesting and active year in the world of tech services and M&A and we look forward to talking to you, as many of you as we can this year as we’re out and about doing our thing. So with that, we’ll talk ribbon on it for this week’s Shoot the Moon podcast. Encourage you to tune in next week, and frankly, every week, as we do these podcasts throughout the year, been our distinct pleasure to be able to do these and hopefully provide a little bit of value to our listeners over time. There’s a topic you’d like to hear about in the podcast. Feel free to send us a note at info, at revenue rocket com, or if you’re interested in looking at in more detail of what we do or mandates we may have in the market, feel free to go to our website, revenuerocket.com and poke around a little bit with that. Make it a great week. Take care.