Last week was a good one for private equity firms, or at least the ones with software businesses on their books. According to Salesforce CEO Marc Benioff, anyway, the SaaSpocalypse is over.
Which was a defensible statement to make in the wake of the blowout numbers his company had just posted, numbers good enough to leave a share price down over 40% from its 2026 starting point not long ago up nearly 1% for the year as of Friday’s market close.
I suspect there are plenty of questions about SaaS still lingering at most PE firms, though, given how many cloud-based software “zombies” they have in their portfolios, a backlog that has made raising fresh capital (even) harder than a year ago, according to 62% of the PE/VC managers Ocorian surveyed in May.
Unless, of course, they’re planning to use the capital for something other than buying SaaS vendors.
“There are pockets of activity that capital is shifting into,” says Barrett Kingsriter (pictured), senior managing director and founder of M&A advisory Pinecrest Capital Partners. “MSPs are one of those.” For good reasons that look even better to investors anxious about inflation, tariffs, and the bond market, he continues.
“If you’re factoring all of these macroeconomic risk conditions into your investment strategy and thesis, you tend to want to shift capital to mission-critical recurring services” that are relatively immune to inflation, tariffs, and interest rates, Kingsriter says. “The MSP market has all of those things plus hyper-fragmentation.”
Not just fragmentation, mind you, but hyper-fragmentation. There are roughly 20,000 investment-grade MSPs in the U.S. at present, by Kingsriter’s count, and the 64 transactions Omdia tracked in Q1 this year did little to change that.
“If you see dozens of deals done, hundreds of deals done, you’re barely scratching the surface from a consolidation standpoint,” he says. Which means there are years of additional M&A activity still up ahead.
“The consolidation play has a lot of running room,” Kingsriter says. “I still think it’s early innings.”
The PE industry agrees. “We’re seeing these platforms continue to grow significantly through acquisition and then trade hands to larger private equity firms,” Kingsriter says. “It’s just creating additional liquidity in the market.” Which is likely to pull even more, even bigger firms into the M&A picture in the future.
It also leaves one wondering what end game all these ever-larger investors building and flipping ever-larger MSPs are playing toward. “It’s going to be really interesting to see what happens with some of the larger platforms in the space, if they just continue to hold on for a longer term and continue to grow or if ultimately we start to see some IPOs,” Kingsriter says.
Or perhaps sales to strategics? To date, notes Top Down managing partner Mark Scott on a forthcoming episode of MSP Chat, the podcast I co-host, global system integrators have paid little attention to MSPs. That could change, though, once the scale of the SMB opportunity in AI (which has already attracted Anthropic’s interest) finally dawns on them and they start doing some homework. Take the biggest GSI of them all, Accenture.
“It’s $70 billion in revenue, 32% GP, 50/50 on recurring revenue and consulting revenue, 17% EBITDA,” Scott says. The biggest MSPs are doing more like 80% recurring revenue and 25-30% EBITDA, and as Integris’s acquisition of Australian MSP First Focus reveals most recently they’re increasingly mimicking the “G” of the GSI playbook. It just makes sense for Accenture to at least consider taking a giant platform off a PE fund’s hands eventually.
In the meantime, according to Kingsriter, it’s a great time to be one of those investment-grade independent MSPs. “You just have a lot more options for who you sell to when it’s time for your own exit,” he says.
To capitalize on them, Kingsriter adds, MSPs big enough for an investor to build a platform on should focus on scaling organic growth, cultivating operational maturity, and assembling the kind of deep, skilled management team PE investors covet. Smaller ones should prioritize fattening the top line, demonstrating consistent growth, and above all else, perhaps, maximizing retention.
“Because your growth can be eaten up by attrition if you’re not retaining your customer set really well,” Kingsriter says.