Why Thoma Bravo Avoided Datto Buyout Bidding War

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Private equity firm Thoma Bravo — owner of ConnectWise, N-able and Sophos, among others — expressed interest in buying Datto at roughly $33.00 to $34.00 per share on February 28, 2022, multiple sources have confirmed to ChannelE2E.

But by April 7, 2022:

  • Thoma Bravo had a revised view of the bidding process — telling Datto that the company was actually worth less than $33.00 per share.
  • On that same day, Insight Partners (owner of Kaseya) increased its bid to acquire Datto from $34.00 to $35.00 per share.

Final Offer: Kaseya Essentially Bids Against… Itself

From November 2021 through March 2022 or so, multiple companies expressed interest to Datto about buying the business at various prices. But when the final round of bids came due, Kaseya/Insight wound up bidding against itself on April 8, 2022.

On that day, Datto’s board requested that Insight Partners/Kaseya increase its bid to potentially win the deal. Kaseya/Insight Partners did so, raising the offer from $35.00 to $35.50 per share — though no other bidders were in the running, ChannelE2E has learned. Datto’s board ultimately accepted the $35.50 per share offer from Kaseya/Insight Partners.

Related: See complete timeline of Datto Buyout Negotiations – November 2021 Through April 2022.

Why Thoma Bravo Walked Away From Datto Bidding Process

The big question: Why did Thoma Bravo essentially reduce its target price to buy Datto and walk away from the bidding process on April 7, 2022?

ChannelE2E has a thesis: Yes, Thoma Bravo respects Datto — and had interest in buying Datto to merge the business with ConnectWise. However, the deal had to be at the right price.

Among Thoma Bravo’s potential concerns, ChannelE2E believes: Much of Datto’s business was build on cloud-connected hardware appliances. Those appliances are very popular with MSPs. But perhaps Thoma Bravo believes that Datto strength also is a potential weakness.

Hypothetically speaking, dozens of direct-to-cloud data protection services could disrupt Datto’s hardware-based appliance offerings. Still, that disruption would require rivals to disrupt Datto’s fiercely strong relationships with MSPs. Moreover, Datto is building out its own Continuity Service for Microsoft Azure.

Thoma Bravo vs. Kaseya/Insight Partners: Different Views of Datto’s Valuation

Whatever the case, Thoma Bravo walked away from the bidding process with a reduced view of Datto’s valuation, at the same time that Kaseya/Insight was increasing its view of Datto’s valuation.

Time will tell who was using the right financial math…

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5 Comments

Comments

    Jeff Weinman:

    Perhaps it’s not knowing the SMB MSP market well enough, or the size of it isn’t big enough for them. There is a lot of on prem infrastructure now and for the foreseeable future, and for faster RTO (recovery time objectives), local hardware is needed.

    Joe Panettieri:

    Hi Jeff: Thanks for your perspectives. I realize on-premises data protection hardware will be around for years to come. And your RTO point is a very important one. But in this particular negotiation, my hunch involves Thoma being worried about the next potential buyer of Datto. In other words, perhaps Thoma was worried about paying too much now for a business that involves some hardware, only to see that business face model-shift pressures when Thoma strives to sell Datto down the road to the next buyer. Again, I think Thoma was sincerely interested in Datto… but at the right price based on Thoma’s financial model.

    Also, I should point out: I’m not suggesting that Kaseya paid “too much” for Datto. I don’t know the financial models that Kaseya ran. And CEO Fred Voccola has a very strong go-to-market track record in the MSP technology market. But it’s safe to say Kaseya acquired Datto based on financial modeling that fit Kaseya’s long-term target expectations.

    From my selfish point of view, I hope Datto remains publicly held for at least one more quarter before Kaseya completes the buyout. Quarterly financial releases sometimes provide some good clues about where this is all heading…

    Thanks again for your note.
    -jp

    Rashaad Bajwa:

    Good article.

    A future buyer should be concerned about the future of local DR appliances as the rest of local infrastructure dependence goes away. Clients will be willing to pay less and less to protect local storage as they depend on it less and less. Local storage is not going away tomorrow, but we can all likely agree that we will depend on it less tomorrow.

    I also wonder how much the difference in perspective between Kaseya (IP) and CW(TB) on Datto was about the value of Autotask. Both Kaseya and CW already have a ton of penetration in to Datto customers, however I think the Autotask product might be an attractive asset to Kaseya… but redundant to CW. I don’t know much about either of them, however is Autotask an upgrade to Kaseya’s current PSA strategy?

    Joe Panettieri:

    Hi Rashaad: Thanks for the multiple considerations you mentioned. Regarding the final line in your comment: “Is Autotask an upgrade to Kaseya’s current PSA strategy?”

    My view: The answer is yes for three reasons.

    • 1. Existing Market Momentum: Datto Autotask PSA has a larger installed base than Kaseya PSA, and I didn’t see Kaseya closing that gap.
    • 2. Point-Product Strength: Datto Autotask PSA potentially makes Kaseya stronger vs. ConnectWise Manage.
    • 3. Software Suite/Platform Strength: Datto Autotask PSA at first glance won’t be a massive money maker for Kaseya in the grand scheme of things. But… the addition of Datto Autotask PSA gives Kaseya a more well-rounded overall product suite to compete against overall suites vs. ConnectWise, N-able, NinjaOne & various up-and-comers.

    Of course, Kaseya & Datto will need to execute post-merger. But the Datto product portfolio on paper gives Kaseya a boost. And on the flip side, the Kaseya product portfolio (VSA RMM, IT Glue MSP Documentation) likely gives the Datto portfolio a boost.
    -jp

    David Mulvey:

    Hey Joe,

    I agree that a hardware based on-premises BUDR appliance is an old school solution to a more modern SMB cloud approach. As a ConnectWise Advisory Committee member, I can share, there have been conversations in the community related to modern BUDR solutions. Thoma Bravo is in the business of looking for undervalued IT assets and investing in those assets. I believe they made the correct assessment, the current Datto share price represented an overvalued asset in the marketplace that has failed, at least to this point, to be willing to deprecate their own technology in favor of a lighter weight and less expensive Cloud solution. The market is ready for someone to leap-frog past the overvalued giant. Stay tuned!

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