In a deal that will expand its MSP services to enterprise customers, Comcast Business recently acquired Network-as-a-Service (NaaS) provider Nitel to capture and grow its MSP business and services. Comcast plans to use the Nitel acquisition to offer additional connectivity, global secure networking and other advanced services to Comcast’s enterprise clients.
By acquiring Nitel’s MSP operations, Comcast Business can also move to expand its offerings into indirect sales channels, broadening its business reach and opportunities in the marketplace.
Comcast Business is acquiring Chicago-based Nitel from international private equity firm Cinven for an undisclosed price. The sale is subject to regulatory approvals and other customary closing conditions. Further terms of the deal are not being released.
As a NaaS vendor, Nitel provides high-performance networking, cloud services, and cybersecurity services to enterprise customers across the United States. Nitel has about 6,600 clients across the country, with a strong focus on mid-size enterprise customers in financial services, healthcare, education, and other industries.
Why Comcast Business Is Buying an MSP
The Nitel acquisition appears to follow a recent trend by some tech vendors to purchase and integrate their own MSPs to allow them to more easily expand their businesses into indirect sales channels, raising revenue and broadening their customer bases.
Several IT analysts, including Dan Olds, principal of Olds Research, said that for companies like Comcast Business, this approach “makes some sense in terms of being able to compete faster in a crowded market.”
This is particularly beneficial for Comcast “given how their existing revenue sources, namely cable connectivity and entertainment, are under immense pressure by competitors,” said Olds. “Their revenue for the past three years has been flat, and they must be looking for some way to juice growth. The business services and connectivity only make up 7% of their revenue but account for 13% of their earnings, which is why we see them doubling down on business services with this purchase of Nitel.”
Olds said that he thinks that more large companies could eye similar moves to buy their own MSPs to expand their own businesses in the future.
“There are a lot of tech-centric big companies who, like Comcast, probably see business services like cloud computing as a way to increase profitability and revenue growth,” said Olds. “There are also a lot of reasonably sized and profitable MSPs out there who could be purchased with stock and modest amounts of cash for a win-win deal. However, as the market consolidates, it will become even more competitive and more difficult to differentiate on things other than cost – which is a formula for lower returns over time.”
One thing is certain, said Olds – MSPs that are looking to sell out will find willing buyers, including some that will overpay to get into a business they are unfamiliar with. “For those who are in it for the long haul, the ride is going to get rockier as well-financed competitors attempt to lure customers away,” he said. “They need to hunker down in their niches, make sure they are delighting their customers, and look for ways to be more efficient on CapEx and OpEx. “
On the other hand, added Olds, “the big conglomerates always have a problem when it comes to focus. When they get too big, they become unwieldy, lose touch with customers, and eventually lose interest and decide to slim down again. “
Another analyst, Zeus Kerravala, the founder and principal analyst at ZK Research, told ChannelE2E that for MSPs deals like this one can be a profitable boon.
“Yes, it has been a trend” to see similar MSP acquisitions like this one by Comcast Business, said Kerravala. “Few MSPs can scale to more than a few hundred million dollars, so an exit like this is best for them.”
For the acquiring company, however, there is a risk in acquiring an MSP, he added.
“In the mid-market, where Comcast's main buyers are, most products are bought through channel partners, such as MSPs,” said Kerravala. “Acquiring your own MSP does have some logic but what happens is the acquirer can end up competing with its own channel offerings, limiting its reach.”
It is more complicated for Comcast Business because “Comcast is not known as a great channel company, and I look at this deal cautiously as it needs to be managed carefully or could cause Comcast to take a step backward,” he said. “However, it is great for Nitel and its customers.”
Rob Enderle, principal analyst with Enderle Group, said he sees the Nitel acquisition as critical for Comcast’s continued survival. Recently, the company announced it is working to spin off some of its cable TV networks into a new publicly traded company as it focuses on its core growth businesses, including residential broadband, wireless, business services, and its NBCUniversal streaming, studios and theme parks.
“Comcast has a problem – it is in decline and wants to sell off its cable networks, but that means they need to build up and strengthen their other business opportunities,” said Enderle. “This acquisition appears to be tied to their effort to redefine themselves. So, while I agree this is a trend, for Comcast in particular, this may make the difference between whether they are still around post-cable-network sales.”
In the big picture, said Enderle, “it showcases this is an element they intend to invest in as they reduce or eliminate their presence in the cable tv segment.
The success of this move is still to be seen in the future, he said. “It really depends on how effective Comcast’s pivot is. If Comcast scales this business, it could put pressure on the independent MSPs to find a larger company to merge with to fight Comcast, which has a reputation of being an aggressive competitor.”
