What’s happening with ConnectWise pricing? Will it go up again in 2024 as much as it did in 2023? And what about the sale of the company itself? Will ConnectWise be sold to another private equity firm or maybe pursue an initial public offering? Is ConnectWise gaining market share from competitors or losing it? How hard is it to manage through these macroeconomic conditions under PE ownership and still deliver what MSPs want and need?
To address these and many other questions, ConnectWise CEO Jason Magee held a Q&A session with media at IT Nation Connect in Orlando this month. Here’s some of what he said.
What’s going on with the potential ConnectWise sale of the company by Thoma Bravo?
(First a little background: early this year word on the street was that ConnectWise owner, private equity firm Thoma Bravo, was looking for its exit. After all, ConnectWise had sold to Thoma Bravo on February 28, 2019 for $1.5 billion, so the “time horizon” was right for a recapitalization or sale to a new owner so that Thoma Bravo could take its profits and make new investments.
Thoma Bravo was shopping ConnectWise around to potential buyers. The company was also considering a potential IPO. However, macroeconomic conditions weren’t favorable for either. Plus, ConnectWise’s (and other older MSP platform companies) growth rate had slowed from double to single digits, according to independent analyst firm Canalys’ Jay McBain, impacting the company's valuation.
PE firms are normally looking for a few multiples of their original price when they sell their portfolio companies. That would mean Thoma Bravo would be looking for a sale price for ConnectWise of $4.5 to 6 billion – something that wasn’t about to happen with the company’s current growth rate and the current macroeconomic conditions. So talk of selling the company right now seems to have chilled.)
What Jason Magee said about a ConnectWise company sale
“When a company is first acquired by PE, if the next day someone comes along and says, hey we can sell you for 3, 4, 5x the multiple, they are going to do it. PEs are in the business of buying and selling companies. Buying, making them better, and selling them for the return on investment.
Prior to the change in the market you would say 4 or 5 years was the time horizon (to sell the company again). We’ll see with the change of market how much longer that may take to put things in place.“
Was Bain one of the PE firms interested in buying ConnectWise?
“We get inbound interest every day, from multiple parties…We have many companies here this week, from private equity to venture capital to investment bankers, Morgan Stanley, you name it. We get inbound interest all the time.”
What about a strategic acquisition by someone like Microsoft?
“I’m not the decision maker. This is the first time I’m a CEO of a private equity backed company. It’s the first time I’m a CEO. I’ve been doing it for 5 years. I’m making the company the best company it could be. We’re making it hopefully more operationally sound. And when the time comes, I’ll probably be provided with the direction of, hey, let’s go public, or lets go into the sales process. And I would believe that sales process would include other PEs, VCs (venture capital firms), or strategic.”
Pricing went up this year a bit more than some partners would have liked. Are you looking at that kind of price hike again in 2024, now that you are in the strategic planning part of the year?
“Much like vendors that we use, we’ve had to do price hikes in the last couple years due to the current conditions. We had to make certain decisions as well. We communicate and help educate our partners on what they should be doing when their expenses increase.”
You have to do certain things to make sure that you’re maintaining what you need as a company. I think, like everyone, we’ve pretty much done the incremental price increase over the years because the costs go up pretty much every year.
I don’t know the exact number but I would say, yes, there will be a standard (price increase in 2024). I don’t think it will be at the level that it was the last year or two.”
Is ConnectWise gaining marketshare from Kaseya/Datto?
“I don’t know the stats. The short answer is yes, but the longer answer is there’s trading that happens among many of the companies. We all strive to be good, we aren’t perfect. We probably lose some to the other players and we win our fair share, too.”
The current environment has put a damper on recapitalizations and put a lot of pressure on companies in terms of cost cutting. How do you manage through this kind of environment and still deliver what you need to deliver to MSPs?
“We do an annual plan with our board of directors, many of which are Thoma Bravo, our PE backers. We put a plan in place in terms of what we believe we can deliver on all financial metrics. Then we hold ourselves accountable to that. If we feel passionate about something and we need to invest in that, we put it in our plan. Once we get through the process and get the plan approved, it’s our job to execute and deliver. In the times where we’re exceeding, we make additional investments. In the times where we may not be delivering we may have to slow things down.”
Do you ever get pushback on those plans?
“It’s a healthy discussion. No different than what we do at Evolve Peer Group and Service Leadership. A lot of what we do in the community is around operational maturity. We practice what we preach.”