Say hello to Sourcepass, the latest startup investment firm seeking to acquire multiple managed IT service providers (MSPs). The startup is aligned with Revenue Rocket, a consulting firm that assists MSPs with M&A and growth strategy initiatives.
Most MSP rollups often involve service providers with strong playbooks -- but they don't necessarily own home-grown software. Sourcepass seems to be hinting that it has the expertise to develop its own automation software.
The company announcement stated:
"Sourcepass is in development to enable their clients several self-services, and on-demand IT solutions, along with transparent views into their entire IT infrastructure and business applications, currently unavailable to this market."
Moreover, the founding Sourcepass team says it has previously built companies that had $6.5 billion in enterprise value over the past decade -- including build-outs that involved Compass, iCore Networks, and Vonage, the startup says.
Key leaders include:
- Chuck Canton, founder and CEO;
- Roli Points, co-founder and head of corporate development; and
- Bruce Simms, co-founder and head of strategy and integration.
Sourcepass did not indicate how the business is funded, nor did the company disclose the size of its M&A war chest.
Sourcepass IT Services Strategy: Executive Perspectives
In a prepared statement, Sourcepass CEO and Co-Founder Chuck Canton said:
“We want to fundamentally improve the lives of customers. Their IT challenges take valuable time and resources away from their operations. We see a major opportunity to make a real difference. We are going to simplify technology assistance and make this as convenient as streaming a movie on Netflix or ordering products on Amazon. We want our customers to have this same convenience in a professional setting so they can spend less time on IT and more time on running their business.”
The big question: Will Sourcepass build and control the underlying technology that powers acquired MSPs, the way Amazon built its e-commerce system and AWS, and Netflix built its overall streaming service technology (albeit atop AWS)?
We sent Sourcepass that question, and Canton replied with this perspective:
"The answer to your question is yes. We are partnering with a top five software company to jointly develop an omni-channel customer engagement platform that is catered towards enhancing and simplifying the IT services customer experience. It is very focused on mobile capabilities. Due to confidentiality we can’t disclose the name of the partner yet, but we will be announcing more details about our partnership in March."
Meanwhile, Mike Harvath, CEO of Revenue Rocket, issued this prepared statement:
“The Sourcepass team has a history of growing companies from infancy to multibillion dollar valuations. They are experienced in not only choosing the right acquisitions, but in knowing how to integrate companies to generate hypergrowth, increased profitability and shareholder value As Sourcepass continues to go to market, we’re looking forward to executing with them a strategic plan to invest in companies that offer complimentary industry-best IT solutions for the SMB market. I have no doubt that with this plan and this team, Sourcepass will propel forward and achieve its vision."
MSP M&A: Seller's Market, Filled With Buyers
M&A activity within the MSP market remains very strong, according to ChannelE2E's list of M&A deals for 2021 and 2020. Buyers include dozens of deep-pocketed private equity firms, regional and global MSPs, ISVs, hardware suppliers and more.
Multiple factors are driving the MSP M&A activity. The M&A drivers include:
- Monthly Recurring Revenue (MRR): Investors crave reliable monthly recurring revenues (MRR) that MSPs generate. Plus, the top quartile of MSPs can enjoy profit margins of 18 percent or more, Service Leadership Inc. benchmark statistics have indicted.
- Fragmented Market: There are perhaps 40,000 to 50,000 true MSPs worldwide -- most of which provide the "last mile" of IT services to local SMB customers.
- SMB Gateway: MSPs have emerged as the de-facto gatekeeper between technology companies and end customers.
- Low Interest Rates: Private equity firms and other debt-centric firms can gather money at extremely low interest rates to create M&A war chests.
- Aging Business Owners: Demographics suggest the first and second wave of MSP owners are now age 60 and older (looking to retire) or age 50 and older (looking to exit, take money off the table and do something new).
Amid all of those realities, Sourcepass faces a market filled with companies seeking to acquire more MSPs. But the Sourcepass team appears to have unique scaling experience that many buyers in the market lack.
