Microsoft leveraged its expanding global network of data centers with the creation of Azure, a cloud computing platform for building, deploying, and managing services and applications. Microsoft Azure is comprised of three delivery models: Platform as a Service (PaaS), Infrastructure as a Service (IaaS) and Software as a Service (SaaS). Focusing on areas of differentiation at each level, Azure has tremendous upside against competitors like Google, Amazon, Salesforce and others. Furthermore, the directory of Azure services continues to expand as Microsoft maintains strategy to extend the boundaries of the future. Historically, Microsoft has a strong reputation for providing secure, easy to manage, and reliable services to an immense client base worldwide. The combination of Microsoft’s vast infrastructure, constant application and services development, and prior track record has established Azure as a compelling driver of value in the space.
The Microsoft Ecosystem covers both devices and clouds, including non-Microsoft operating systems and devices. With its “Intelligent cloud, intelligent edge” strategy, the Microsoft Ecosystem combines the virtually limitless computing power of the cloud with intelligent devices at the edge. This platform has established a powerful foundation for building immersive and transformational business solutions. Blending the physical and digital world as a mixed reality, the Microsoft Ecosystem realizes the vision of the future and remains well positioned during this ever-changing digital age.
As digitalization accelerates, companies within numerous industries are migrating operational processes and systems to the cloud. Driving this digital transformation, the rise of Azure can be attributed to three key factors. First, increasing competition and demanding market initiatives encourage companies to expand business to the cloud. Thus, the digital move enhances quick provision computing resources without the costly and laborious task of building data centers and running large-scale servers. The second factor driving the rise of Azure is market appeal for security features, a highly valued deliverable in this ecosystem. As more companies migrate from on-premise servers to a cloud system, cybersecurity is necessary and essential. For example, Microsoft offers single sign-on (SSO) which prevents compromised credentials, the main cause of security breachings. By requiring the use of just one robust password, the likelihood for unwanted breachings is substantially reduced. Furthermore, beyond the security measures, productivity tends to increase because a firm’s IT desk no longer has to spend time helping other employees recover forgotten passwords for various applications. The third factor driving Azure’s high growth is the integration of IaaS, PaaS and SaaS. Compared to its competition, Azure focuses on areas of differentiation at each level, powerfully integrating these three delivery models. This not only delivers high growth but also spurs growth in terms of scale.
The Microsoft Ecosystem is a highly fragmented market, and with the explosion in growth by Office and Azure, firms in this area have tremendous upside. Successful targets of M&A typically share several characteristics, among them double-digit revenue growth, gross margin greater than 40%, and proprietary and scalable services/solutions. Perhaps the most attractive feature is a recurring revenue stream which definitively characterizes Azure’s recent performance. This steady growth is indicative of why companies integrated with Azure are so sought after, especially by financial sponsors. The buyers in these transactions have been a healthy mix of strategic companies and financial sponsors, although no one firm has dominated the acquisitions.
Specializing in the IT Services industry sector, 7MA has recently closed their fourth Microsoft transaction within a twelve month period. As Microsoft continues to dominate the productivity space and to accelerate growth in the cloud, companies in the space continue to demonstrate acquisitive strategies. In a recent 7MA deal, the Microsoft business unit of SADA Systems, a premier Microsoft Cloud Solutions Provider (CSP), was acquired by Core BTS. Adding SADA’s Microsoft business unit, Core BTS strengthened their Microsoft solution set and accelerated their capability to address demanding market initiatives for Azure solutions. The combination of Microsoft’s heavily fragmented market, rapid growth, and high market demand all indicate a promising outlook for M&A activity in the space. In another recent 7MA deal involving the Microsoft Ecosystem, Ernst & Young acquired Sonoma Partners, a consulting firm that specializes in Dynamics 365.
With Azure and the rest of the ecosystem trending upward, the value of companies associated with this ecosystem are along for the ride. In this dynamic and active space, the ecosystem’s highly fragmented market provides an ideal opportunity for acquisitive strategies. While firms continue to pursue secure measures, joining the Microsoft Partner Network (and more specifically Azure) is a compelling driver of value. With increasing demand for MPN in early stages of the digital age, we believe that this initiative will continue, especially for Azure-integrated companies.
