Private equity companies are starting to pour money into the managed services software market. The first deal involved Summit Partners investing in Zenith RMM, a Zenith Infotech spin-off, this week. The next private equity deal involving a managed services software company will be announced within two weeks, according to a trusted MSPmentor source. The big question: Is private equity good for the managed services software industry?
The answer requires a close look at each individual deal.
Reasons for concern: Some private equity firms invest in technology companies that are under duress. Those types of deals often involve management changes, cost-cutting initiatives and simplified business plans to improve balance sheets and focus on one or two growth opportunities that improve company valuations. Some legacy products — and legacy managers — often get shown the door. The steps improve business focus but sometimes leave customers and partners with dead-end products.
Reasons for hope: Now here’s the good news in the managed services market. The Zenith RMM spin-off appears to be focused on growth-oriented initiates rather than cost-cutting. And I’m confident that a second private equity deal, coming within two weeks, will likely involve an accelerated growth strategy for another managed services software company.
In an email exchange with MSPmentor, my source said the recent and forthcoming private equity deals are clear indications that deep pocketed investors are starting to discover the promise of the managed services market. The source notes that managed services software companies have helped to automate SMB technology management. But more investment is required to ensure managed services becomes a de facto standard within the SMB sector, while the IT automation tools gradually push into mid-market and enterprise corporate IT departments.
MSPmentor’s Spin
So what’s my opinion? It takes time to measure the value of private equity investments. Summit Partners and Zenith RMM have to work hard to ensure Zenith’s MSP partners continue to see value from the company’s remote monitoring software and NOC (network operations center) services. And the next private equity deal, expected to surface within two weeks, will require a similar commitment to MSPs that bet their businesses managed services software.
Also of note: There are clear differences between private equity investments and traditional merger and acquisition deals. We’ve previously seen straight acquisitions — Quest Software buying PacketTrap, for instance. But more recently I haven’t seen too many technology companies buying up managed services software companies. It suggests to me that the overall managed services software market is “good” — but there still needs to be some more incubation time to make this a “great” market for more software vendors.
That’s where private equity potentially enters the picture.
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Posted In: Acquisitions | Managed Services | Partner Program | Remote Monitoring & Management Software
Tags: PacketTrap | Private Equity | Quest Software | Summit Partners | Zenith Infotech | Zenith RMM
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Joe,
So the question is “Is private equity good for the managed services software market?”. Answer is………..all depends. I’ve done nothing but work for VC/private equity backed tech start ups (including MSP tech vendors) since I started my career is 1988 (up until 2 years ago). The early days (1988-2000-ish) were great (as we all know). VC’s/private equity firms were investing in growth and would hold out to see it through to the end in hopefully (many times) good returns via IPO etc. Since 2000-ish it’s all about VC’s/private equity firms being extremely risk averse. Now all I see is little investment/little commitment and the words “So when are we going to sell this thing?” (no matter what they tell you face to face) vs. how are we going to grow it. So………….it all depends……what is the “real” goal of the investor. May sound cynical but…..
best,
Todd,
You’ve certainly had staying power in a high-stress market. Yup, many VCs and private equity firms have (A) reduced their risk tolerance and (B) wanted to accelerate their exists. But I still think it’s a case by case situation in terms of long-term commitments and control.
You nailed it in the final line: “What is the real goal of the investor?”
Motivations certainly vary:
1. cost cutting and fast flip?
2. big investments for big long-term growth?
3. A gradual repositioning for long-term success?
4. Something else?
I hope to explore this conversation more as more private equity deals are “potentially” announced (wink, wink). Stay tuned.
-jp
Joe,
Do you mind me “plugging” Sam Attias, at Technology Capital Investors (TCI), he/they seem to be solid citizens doing it “the right way”.
best,
Todd
Todd,
We always encourage those types of mentions as long as readers know who’s posting the comments and why. We appreciate the fact that you’ve always disclosed industry connections, etc. I bumped into Sam last week; sharp guy.
-jp