Private Equity Is (Still) Eating the MSP Software Market
Private equity firms have acquired many (though not all) of the large MSP software providers in the SMB market. But the M&A game isn’t over. Indeed, the stakes may be about to go even higher.
Updated February 25, 3:00 p.m. ET: Thoma Bravo has acquired ConnectWise, fulfilling the thesis that ChannelE2E shared below on February 4, 2019. The article below from February 4 remains unchanged.
The big private equity players in the sector — particularly Insight Venture Partners, Thoma Bravo and Vista Equity Partners, among others — are plotting their next moves. The graph below shows what those PE firms own so far, and hints a potential synergies between the MSP software and security markets.
Private Equity, MSP Software and Security: Who Owns What
Largest MSP Software & Technology Providers
Generally speaking, the five largest MSP software and technology providers in the SMB sector are considered:
- ConnectWise (privately owned and closely held)
- Continuum Managed Services (owner: Thoma Bravo)
- Datto (owner: Vista Equity Partners)
- Kaseya (owner: Insight Venture Partners)
- SolarWinds MSP, a division of SolarWinds (owners: Thoma Bravo, Silver Lake and public stock)
MSP Software & Technology Companies: Product Portfolios
The chart below mentions whether those five technology companies own or partner to deliver such technologies as:
- RMM (remote monitoring and management) software
- PSA (professional services automation) software
- BDR (backup and disaster recovery)
- NOC (network operations center)
- Networking hardware
- Quoting and selling software
- MSP documentation software
The chart above does not mention security, though all the companies above offer various security or data protection solutions. Many of the firms are acquiring or partnering to deliver software that addresses SIEM (security information and event management), threat detection, endpoint security, SOAR (security orchestration, automation and response), and more.
Here Comes Barracuda Networks
Some big names are marching into the market.
For instance, Barracuda Networks has aggressively shifted its partner program toward an MSP model through organic and M&A moves. The strategy extends all the into Barracuda’s boardroom, CEO BJ Jenkins told ChannelE2E in the fall of 2018.
With subscription services for MSPs in mind, Barracuda has also extended beyond security into backup and disaster recovery (BDR) and now remote monitoring and management (RMM). The RMM move involves acquiring Managed Workplace, a niche offering that has had multiple owners since Level Platforms sold the code in 2013.
Most MSPs leverage a combination of BDR, RMM, PSA (professional services automation)and security solutions to automate, protect and manage business systems. Hmmm… could Barracuda be evaluating a potential PSA acquisition? We’re watching and listening for clues.
Related Update: Carbonite acquired Webroot on February 7, 2019, adding another major multi-platform player to the MSP software market. The company offers cloud- and appliance-based backup and disaster recovery (BDR), endpoint security, network security and cybersecurity training.
Private Equity: Shuffling the MSP Software Deck?
Meanwhile, private equity firms are taking a closer look at their MSP software and technology portfolios — trying to decide where to invest more, what to acquire, and what to potentially jettison.
One potential starting point: More synergies between MSP software platforms and security offerings (see chart further above).
Among the additional variables to keep in mind…
- Insight Venture Partners: The PE firm has owned Kaseya since 2013, and in 2018 tucked sister PE assets Unitrends and Spanning into the business. Plenty of pundits speculate that the time is now — 2019 — for Insight to explore a potential Kaseya sale. Still, we wouldn’t be surprised if Kaseya unveils at least one or two more acquisitions this year before any parent ownership changes occur. Our best guess? Keep an eye on Kaseya’s relationship with The 20. We’re also checking rumors that Kaseya and Pulseway may have business connections to one another.
- Vista Equity Partners: It has only been about a year since Vista acquired Datto and tucked portfolio company Autotask into that business. Now that Tim Weller has succeeded Datto founder Austin McChord as CEO, we suspect the company will be making acquisitions soon. Yes, Datto has been evaluating a range of acquisitions. But the company has avoided the temptation to over-pay for startups and upstarts with inflated valuations.
- Thoma Bravo: The company still has stakes in Barracuda, Continuum and SolarWinds MSP. To be clear: The three technology companies are completely separate businesses. Just a guess, but we expect that to remain the case. More tuck-ins at Barracuda wouldn’t surprise us. And SolarWinds continues to make acquisitions. The big wildcard involves Continuum. Some folks are speculating that Thoma Bravo could be preparing a big M&A move that combines a major business with Continuum’s successful NOC (network operations center) business.
Yes, additional PE firms are in the market. We’ll offer a deeper report on those additional names soon.
Meanwhile: In Tampa, Florida
The biggest wildcard remains ConnectWise. Still privately owned and closely held by its founders, the company has declined private equity investments in recent years. Is that about to change? I don’t have any firm info. But my latest thoughts are spelled out below.
ConnectWise Co-founder and CEO Arnie Bellini, brother David Bellini and a handful of rival executives largely pioneered the early days of MSP software.
Former executives from Autotask, GFI Software, Kaseya, Level Platforms, N-able Technologies and Zenith Infotech, among others, also come to mind as MSP market pioneers. (I apologize to those I failed to mention.)
But while many of those executives have moved on, Arnie Bellini is the only executive to lead his company through every stage of the MSP software industry’s evolution.
ConnectWise and Tech Giants
During my 10-plus years blogging about the MSP market, I’ve always believed that ConnectWise would one day be acquired by another technology company — perhaps by 2025 or so.
My best guess always pointed to Tech Data as a potential ConnectWise buyer. My reasoning: ConnectWise and Tech Data are neighbors in Florida. And ConnectWise’s business is extremely complementary to distribution. And former Tech Data CEO Steve Raymond sits on ConnectWise’s board.
Still, the ConnectWise-Tech Data combo was always just my hunch. A guess based on little more than a shared hometown and potential business synergies.
Other pundits have asked me if Cisco will eventually acquire ConnectWise. I don’t think that’s the case, though the two companies have had a tight business relationship for more than a year.
Evolved Thinking: ConnectWise and Private Equity
In recent weeks, my M&A gut has evolved a bit — especially as private equity continues to flood the software market.
For the first time in my blog career, I now think ConnectWise may eventually get acquired by private equity. I wouldn’t be surprised if a PE firm like Thoma Bravo one day, perhaps sooner rather than later, becomes the buyer.
Bellini, at age 60, is still plenty young to drive ConnectWise forward for years to come. But the company recently promoted Jason Magee into the president position. And private equity firms like Thoma Bravo (among others) are flush with cash that they need to put to work. ConnectWise could be a tempting target…
Just the Facts
Admittedly, the blog above is chock full of speculation. But some facts are indisputable. The biggest one of all: Private equity firms are flush with cash, and they’ve got their eyes on more M&A deals in the MSP software market. We look forward to reporting the next moves, and the implications for MSPs worldwide.