Datto Explores Potential Sale; Private Equity Interested in MSP Technology Provider

Credit: Datto

Datto is exploring a potential sale, and private equity firms have expressed interest in the MSP technology provider, according to Bloomberg.

Datto is publicly held ($MSP) and currently backed by Vista Equity Partners. The company’s market cap is $3.8 billion, according to Yahoo finance. Neither Datto nor Vista Equity commented on the Bloomberg report.

Datto and MSP Technology Rivals

Datto, originally known for backup hardware appliances tied to cloud services, has aggressively expanded to offer cloud-centric software that allows MSPs to manage, monitor and safeguard SMB networks. The expansion strategy appears to be performing well. Indeed, Datto’s total revenue was $164.3 million in Q4 of 2021 — up 18% from $139.0 million in Q4 of 2020. Also, net income was $5.7 million — compared to a $7.2 million net loss in Q4 of 2020.

Still, Datto’s stock trades at $23.37 as of March 17, 2022 — down from an IPO open of $32 in October 2020. The challenge looks something like this: The MSP market is growing nicely, but some MSP technology providers have not grown nearly as rapidly as public cloud providers such as Microsoft Azure and Amazon Web Services (AWS). Technology investors often view stocks through a public cloud/enterprise lens, and that has limited the performance of MSP-oriented stocks, ChannelE2E believes.

Datto’s key rivals include ConnectWise, KaseyaN-able and NinjaOne in the MSP technology market, and numerous cloud backup providers — names like Acronis, Arcserve-StorageCraft, Axcient, Carbonite (owned by OpenText), MSP360 and Veeam, among many others. Private equity firm Thoma Bravo backs both ConnectWise (privately held) and N-able (publicly traded, $NABL). Venture capital firm Summit Partners has a stake in NinjaOne, which has pursued an organic software development strategy rather than M&A. Many of Datto’s rivals are generating double-digit percentage revenue growth year-over-year, with NinjaOne growing the fastest, according to the chatter we’ve heard.

Datto: Potential Buyers and Bidders?

M&A rumors involving two of the Big Four MSP technology suppliers (ConnectWise, Datto, Kaseya, N-able) have surfaced off and on for more than a year. Among the reasons: Kaseya, backed by private equity owners Insight Partners and TPG, has been seeking a financial event such as a potential IPO or a recapitalization-type move. Amid Kaseya’s financial journey, rumors about a potential ConnectWise-Kaseya business combo surface from time to time — but again, that’s just an occasional rumor.

Now, Datto’s apparent decision to explore a potential sale will likely inspire all of the players to examine the competitive landscape for potential business combinations and their implications. Still, there’s no guarantee that Datto will actually participate in or complete a sale, Bloomberg noted.

The M&A wildcards include private equity firm Thoma Bravo — which backs ConnectWise, Barracuda Networks, N-able, Sophos and many other technology firms. In theory, Thoma Bravo could acquire Datto and maintain it as an independent business, or potentially merge it with another portfolio company.

Meanwhile, we don’t know if publicly held technology giants — names like Cisco Systems, Dell Technologies, Hewlett Packard Enterprise (HPE), HP Inc., Lenovo and Microsoft — will take a look at Datto. Of those companies, Datto has the most apparent synergies with Cisco Systems. Indeed, Cisco now heavily favors MSPs as its go-to-market strategy. And Datto’s product line (mostly cloud services with some hardware appliances and networking gear mixed in) aligns well with Cisco’s product portfolio, ChannelE2E believes. Still, we don’t know if any of the big enterprise IT providers will potentially bid for Datto.

Datto: MSP Technology and Cybersecurity Business Reach

Datto could be a tempting acquisition target for a deep pocketed buyer that wants to play big in the MSP technology market. Indeed, Datto as of the end of 2021:

  1. Served more than 18,500 MSP partners — a net increase of 1,500 (up about 9%) from the previous year.
  2. Generated about $35,600 of ARR (annual recurring revenue) per MSP, up about 11% from the previous year.
  3. Supported 1,400 MSPs that spend at least $100,000 in ARR with Datto, up 27% from December 2020.

Datto is also striving to blend organic growth with acquired technology. Key moves include acquiring Infocyte for Endpoint Detection and Response (EDR) technologies and Managed Detection and Response (MDR) services. It sounds like a promising acquisition, though Datto will face intense competition from far larger and rapidly growing EDR and MDR software and service providers — including a newly minted unicorn named eSentire.

And What About DattoCon 2022?

Curiously, Datto has yet to announce an official date and location for its annual DattoCon 2022 conference. CEO Tim Weller during a recent earnings call said the company was targeting Q3 to potentially host DattoCon 2022. DattoCon is a very popular event for MSPs — but a big expense item for Datto. We wonder if Datto is holding off on a DattoCon event announcement amid the potential M&A discussions — but again, that’s speculation on our part.

Updated March 24, 2022: DattoCon 2022 is now confirmed for September 11-13 in Washington, D.C, the company disclosed on March 24, 2022.

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    Peter Radizeski:

    No quicker way to ruin the momentum of the good stuff happening in the Datto-verse than a sale.

    Private Equity ruins a lot of companies.

    Joe Panettieri:

    Hi Peter: Thanks for your readership and comment. From my perspective, it’s unfair to label private equity as good or bad. Each deal — the company and their private equity investor — has to be looked at individually.

    For instance: Are we talking about a private equity firm layering more debt onto a struggling retailer (example: Toys R Us)? Or are we referring to a private equity firm making a growth-oriented investment that accelerates more hiring and potential acquisitions?

    I certainly understand the good and bad of private equity. And MSPs should understand the financial backing of their software providers. But I do think each deal should be examined individually. -jp

    Jeff Weinman:

    Couldn’t agree more (coming from street level). Do all good things have to come to an end? Though Duo has maintained even though they were acquired by Cisco years ago.

    Peter Radizeski:

    While I do agree that some PE deals can result in growth, mostly it hasn’t worked out that way. I can understand why some companies like Dell and Mitel needed to go private to make a significant transition in the business. One worked out for the company; one did not. Call me jaded, but I have watched many companies get acquired by PE money and go to hell in a hand basket.

    Dan Foote:

    This is helpful, yet harmful news to their brand. Yes, it would depend on which entity decides to purchase Datto–if at all. Yet if it’s an equity investor like Thoma Bravo, I’ll find replacement solutions for the products I currently purchase from Datto. TB bought SonicWall, nearly destroyed it by selling to Dell, and it’s not been the same since. They have ConnectWise, yet any improvements to what’s plagued CW have not been forthcoming. Simply put: I don’t trust them to do good.
    I truly hope to not see Datto slide into the realm of irrelevance–at least for my company.
    This type of consolidation and convergence does not help the overall MSP community.

    Joe Panettieri:

    Amid the comments about private equity, also ask yourself this: What is the “state” of a company before it gets acquired? Datto is on solid financial footing and already backed by private equity. In stark contrast, Mitel (a good example shared by Pete above) had fundamental business challenges as the cloud came along… -jp


    Great article
    I hope this is not going to happen. I already played this game with ConnectWise and it did not end well.

    Dan Foote:

    Very true, Joe, yet it also depends on the PE company that’s purchasing the asset. What are their motives? If it’s simply to generate income, then they’re failing the overall community.


    considering what Datto did to Open Mesh, they can disappear for all I care. I’ve moved on to other solutions, but Open Mesh had a good flexible product and an awesome business model.

    Paul Cissel:

    Joe hit the nail on the head, PE is difficult to label good or bad (in general or deal by deal). The perception of whether a particular PE is good or bad really comes down to the operations management of the company they invested in. What are the financial and operational expectations on a quarterly bases. Private Equity raises money from limited partners (LLP’s, etc) and they are beholden to provide not only a return but de-risking as well. Some operating companies will have very unrealistic growth budgets. PE generally try to temper these down to the real world, some not as well as others. As a generalization, PE will give management 3-4 quarters to perform on their budgets. If meeting these budgets is not happening, PE tightens the screws. I am familiar with many of the PE firms in our Service Provider place. I don’t know one who’s MO is to rip, tear and lacerate. They make platform investment because they believe in management and the growth thesis. But if that is not happening, PE needs to get the company on track asap. PE is about returns to their partners and shareholders (of which some of the operating executives are a part of).

    Joe Panettieri:

    PS: I should have disclosed… ChannelE2E and our sister site MSSP Alert are now owned by CyberRisk Alliance, which is backed by private equity.

    Peter Radizeski:

    I can agree that not all PE deals end in a mess. In over 20 years in this space as a VAR, consultant and partner, it seems like more M&A deals in the telecom and IT space have produced a mess rather than a betterment for the company, employees and customers. As more and more private money enters the channel and the vendors, there just isn’t enough growth to pay it all back with returns. 4 quarters is not enough time to plan, hire the talent and execute a strategy. The smaller the deal, the better the result. The larger the deal, the results get less optimum for everyone.

    Andrew Smith:

    My understanding was that Datto has been PE owned since Austin’s sale. Has something changed with their issued shares? From my reading of the IPO Vista/PE holds ~132M shares with ~22M issued to the market under the MSP ticker

    Joe Panettieri:

    Hi Andrew: Your understanding generally reflects our coverage above. As we point out, Datto is backed by Vista Equity Partners but shares are also publicly traded. That said, it sounds like Datto’s owner (i.e., Vista) is listening to buyout offers for Datto.


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