The Deal
Apollo Global Management-backed Trace3 acquired Colorado-based IT services provider Zivaro in December 2024, marking the platform's strategic entry into the federal government market. The transaction represents Trace3's first major move into public sector services after building its reputation as an enterprise-focused technology solutions provider.
Trace3 operates as a technology solutions provider specializing in cloud, data center, networking, and security services for enterprise clients. The company has been backed by Apollo Global Management as part of the private equity firm's broader technology services consolidation strategy. Zivaro brings a complementary focus on government and public sector clients, providing cloud, infrastructure, and digital transformation services with established federal market presence and security clearances.
The acquisition was announced in December 2024 with undisclosed financial terms. Both companies are headquartered in the Western region, with Zivaro based in Colorado, suggesting potential operational synergies and market overlap that could drive integration efficiencies.
Strategic Logic
This acquisition represents a classic market expansion play, allowing Trace3 to diversify its customer base beyond traditional enterprise clients into the lucrative federal government sector. The deal provides immediate access to Zivaro's established government relationships and security clearances - assets that typically take years to develop organically and represent significant barriers to entry in the federal IT services market.
The strategic fit centers on several key factors:
- Market Access: Zivaro's existing federal contracts and security clearances provide Trace3 with immediate credibility and access in the government sector
- Service Complementarity: Both companies focus on cloud, infrastructure, and digital transformation services, creating opportunities for cross-selling and service expansion
- Geographic Synergies: Western region presence allows for potential operational efficiencies and shared resources
- Customer Diversification: The deal reduces Trace3's dependence on enterprise clients while tapping into the stable, long-term contract nature of government work
For Apollo Global Management, this acquisition aligns with the broader private equity trend of building diversified technology services platforms that can serve multiple market segments. Government contracts often provide more predictable revenue streams and longer contract terms compared to commercial engagements, potentially improving the platform's overall risk profile.
Valuation Context
While deal terms remain undisclosed, this transaction occurs during a period of continued consolidation in the MSP sector, with government-focused providers typically commanding premium valuations. The federal IT services market has shown resilience through economic cycles, supported by ongoing digital transformation initiatives and cybersecurity investments across government agencies.
MSPs with established government relationships and security clearances generally trade at higher multiples than their commercial counterparts due to several factors: higher barriers to entry, longer contract terms, more predictable revenue streams, and the specialized nature of government compliance requirements. The federal market's emphasis on cybersecurity and cloud migration has particularly benefited providers like Zivaro with relevant capabilities.
Recent comparable transactions in the government IT services space have reflected strong buyer interest, though specific multiples vary significantly based on contract mix, security clearance levels, and growth profiles. The involvement of Apollo Global Management suggests this deal likely commanded a competitive valuation, given the strategic value of federal market entry for the Trace3 platform.
What MSP Owners Should Know
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Government Specialization Commands Premium Valuations: MSPs serving government clients, particularly those with security clearances and established federal relationships, consistently attract higher valuations than commercial-only providers. The barriers to entry and contract stability in this market create significant strategic value for acquirers.
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Market Diversification Drives Buyer Interest: Trace3's move to diversify beyond enterprise clients highlights how buyers value MSPs that can reduce customer concentration risk. Owners should consider how their client mix and market focus positions them for strategic buyers seeking specific market access or diversification.
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PE Platforms Prioritize Strategic Add-Ons: This acquisition demonstrates how private equity-backed platforms actively seek bolt-on acquisitions that provide new market access or capabilities. MSPs with specialized expertise or unique market positions may find themselves attractive targets for platform companies looking to expand their service offerings or geographic reach.
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Security and Compliance Expertise Remains Valuable: The emphasis on Zivaro's security clearances and government compliance capabilities reinforces the ongoing value of specialized security expertise in MSP transactions. Owners with strong cybersecurity practices, compliance frameworks, or industry-specific expertise should highlight these differentiators when considering exit opportunities.