MSP Software IPOs: Who Will Go Public First?
Over the past few years, I’ve rarely speculated about if or when MSP software companies would launch IPOs (initial public offerings). Many of the players are successful, profitable and growing. But skeptics have wondered if the MSP market would ever be big enough to support software- or cloud-related IPOs.
In recent years, most of the financial activity has involved private equity deals and/or mergers and acquisitions. True IPOs haven’t really emerged in the MSP software sector, though some exceptions are set to emerge. An example: The Dell SecureWorks managed security services IPO, although that’s mostly driven to help Dell raise money before its pays $67 billion to buy EMC.
But let’s shift our focus back to the core MSP software market — which includes key software and cloud segments like RMM (remote monitoring and management), PSA (professional services automation), BDR (backup and disaster recovery), security and more. Quite a few of the market players remain in growth mode. Some, I believe, will pursue IPOs within 18 months to three years.
MSP Software Company IPOs: Predictions and Speculation
Here’s a shortlist of potential movers and shakers. The IPO predictions are based purely on my opinions, having covered each player for several years. Companies are sorted alphabetically.
Autotask: Acquired by Vista Equity Partners in 2014, I think for about $99 million… though my figures could be off. Under CEO Mark Cattini’s leadership since 2010, Autotask has pushed beyond its PSA heritage to acquire RMM and file sync and sharing capabilities. The company also localized its software for a global push.
- Chances of IPO Within 18 to 36 Months: 30%.
- Reasoning: Certainly a growth company. But I suspect Vista Equity’s time horizon for owning Autotask could extend beyond 2019. If I had to guess, I suspect the actual exit — regardless of date — will involve M&A rather than IPO.
ConnectWise: Founded by brothers Arnie and David Bellini, ConnectWise pushed beyond its IT services heritage to offer PSA long before I started blogging about the industry in 2008. Then, investments in LabTech Software (RMM, 2010), and Quosal (quoting and sales proposal software, 2011) arrived. And the ScreenConnect buyout (remote control, 2015) arrived. By late 2015, ConnectWise reorganized those puzzle pieces into a single corporate umbrella. ConnectWise has never raised money. But all employees have stock in the business. And at some point, folks will want to cash in some shares, I suspect.
- Chances of IPO Within 18 to 36 Months: 60%.
- Reasoning: At a recent event in Tampa, CEO Arnie Bellini said the company was considering going public, according to the Tampa Bay Times. I think ConnectWise will take “some” of the money off the table, unlocking some shares for owners and employees to potentially sell on the public market. However, I think the key leaders will retain major stakes in the company. The big wildcards involve the health of financial markets and/or any surprise bidders that become obsessed with ConnectWise’s (A) customer base or (B) rich data within the ConnectWise systems. The smart money is on IPO. The long-shot involves M&A.
Continuum: Rewind to 2011 when Summit Partners acquired Continuum from Zenith Infotech. Gotta admit: I was initially skeptical of this deal because the core RMM (remote monitoring and management) and NOC (network operations center) platforms weren’t in good shape at the time. However, the Continuum buyout involved a new CEO (Michael George) and an executive team overhaul. Then, RMM and NOC enhancements arrived at predictable intervals. MSPs remained loyal. The base grew. BDR services arrived. And Continuum’s own headcount has grown from roughly 430 employees in 2011 to roughly 1200 today. I believe the company’s revenues grew roughly 40 percent in 2015, though that’s just chatter… perhaps swirling only in my head.
- Chances of IPO Within 18 to 36 Months: 40%
- Reasoning: All the KPIs I’ve heard suggest Continuum’s business is in strong financial shape. And the company just added a key boardmember who has IPO and M&A expertise. Still, I wonder if Summit wants to hold onto Continuum for just a bit longer than the 36-month window I’ve mentioned. Plus, I suspect the potential exit points more to M&A rather than IPO.
Datto: The rarest of rare unicorns, Datto is a startup with a $1 billion valuation… oh, and profits. CEO Austin McChord has been bolstering Datto’s board and executive ranks. Recent hires like Chief Revenue Officer Brooks Borcherding bring midmarket experience to the company. Series B funding — a $75 million round — arrived in 2015. A new pricing model for hardware and a push beyond storage/BDR toward networking are under way.
- Chances of IPO Within 18 to 36 Months: 20%
- Reasoning: Technically, it sounds like Datto could go public right now — thanks to strong growth and profits. However, Datto just raised its Series B round last year. And if I had to guess, I think the investors have a longer time horizon than the 3-year window I’m using to shape this blog. Also keep in mind: Datto’s board and advisors include veterans from Akamai, EMC, VMware and Xerox. That suggests Datto is thinking big. Really big. So I suspect the exit will be an IPO rather than M&A. I just think timing is a bit more distant than some pundits predict.
StorageCraft: Boom. Big things are happening at this MSP- and channel-centric storage company. TA Associates acquired control of StorageCraft for $187 million in 2015. New StorageCraft CEO Matt Medeiros arrived with the deal — along with several channel peers from Dell SonicWall. Even before the changes, StorageCraft’s backup, disaster recovery and data protection solutions were supported on-premises by 8,000 VARs, and available on a subscription basis from 3,100 managed services providers (MSPs), the company said. Fast forward to the present and StorageCraft is launching new partner strategies, new products and new globalization efforts.
- Chances of IPO Within 18 to 36 Months: 5%
- Reasoning: This growth story sounds like it’s set to accelerate. But I suspect TA Associates has a longer ownership horizon than the 18- to 36-month window I’ve mentioned.
MSP Software IPOs: Other players to know
I’ve also got my eyes on Acronis, AppRiver, Kaseya, LogicNow, SolarWinds N-able and Webroot. And while several of those players are growing rapidly, a range of factors could limit the chances of any near-term IPO. For instance, N-able is part of the larger SolarWinds — which was recently taken private. And I suspect Kaseya, a potential turnaround story, is more likely an M&A target rather than an IPO candidate within a 36-month window.
Which MSP-centric software companies did I overlook? And where did I miss the target? I’m all ears.