ConnectWise: $200 Million War Chest for Tuck-In Acquisitions?

ConnectWise, backed by private equity owner Thoma Bravo, is positioned for multiple tuck-in acquisitions potentially valued at a combined $200 million through 2024, according to an investment thesis from Fitch Ratings — one of the Big Three credit rating agencies (the other two being Moody’s and Standard & Poor’s).

On the one hand, the Fitch Ratings statement isn’t all that surprising. ConnectWise has steadily acquired MSP-focused business automation, IT management and cybersecurity software for roughly a decade. Rivals such as Datto, Kaseya and N-able have also been active buyers in the MSP software market.

ConnectWise Financial Performance KPIs

But on the other hand, the Fitch Ratings statement also reveals various ConnectWise business KPIs (key performance indicators). For instance, according to Fitch Ratings:

  • Recurring revenue represents over 95 percent of total ConnectWise revenue.
  • The company’s net revenue retention rate has been sustained at over 100 percent.
  • Pro forma quarterly software annual recurring revenue (ARR) growth has remained above 10 percent since Thoma Bravo acquired ConnectWise in 2019.
  • ConnectWise serves over 35,000 customers — MSPs and TSPs (technology solutions providers) — globally.
  • During 2020, no single customer represented over 1 percent of ARR.
  • Despite ConnectWise’s acquisitive nature, the company’s net leverage has historically reverted back to 4x-5x within 12 months after temporary increases.
  • Fitch expects excess capital to be used for acquisitions to accelerate growth or for dividends to equity owners with financial leverage remaining at moderate levels.
  • ConnectWise has $1.05 billion of secured first lien debt due 2028. Given the recurring nature of the business and adequate liquidity, Fitch believes ConnectWise will be able to make its required debt payments.

Ahead of the Fitch Ratings report, Thoma Bravo tapped a group of lenders led by Bank of America to refinance a ConnectWise loan, Bloomberg reported on September 10.

ConnectWise People, Product and Process Evolution

Meanwhile, ConnectWise CEO Jason Magee has been enhancing the company’s customer support efforts — which had hit some turbulence earlier this year, according to some MSPs. Magee shared multiple people, process and product updates with ChannelE2E during a recent conversation. We’re striving to share more details this week.

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