The managed services community lit up yesterday after news broke that N-able was acquired by systems management vendor SolarWinds. It was heralded as a turning point in managed services. In reality, it may signal something entirely different.
Congratulations to N-able Technologies Inc.; its acquisition by systems management vendor SolarWinds Inc. for $120 million caps a decade-long journey in the remote monitoring and management segment for which the Canadian company was a pioneer.
The channel community lit up upon hearing the news, and the frenzy of attention has continued. Many questions have been raised as to the significance of the deal, whether N-able’s partners will remain with SolarWinds, and what it means to the managed services community.
Here are a few objective thoughts.
1. $120 Million Isn’t a Lot
Some people want to make a big deal out of the price for N-Able. No one is going to sneeze at $120 million (U.S. or Canadian), but what does it say about the entire managed services segment? Speculation is that N-able got five times its revenue, which would peg its annual till between $20 million and $25 million. For a company built around supporting businesses with recurring revenue streams and having literally thousands of customers, that level isn’t all that impressive.
The truth: More than a decade into the managed services era, the leading RMM and professional services automation (PSA) vendors haven’t broken out in the way companies like Box Inc. (collaboration) or Kaspersky Lab ZAO (antivirus) have. The fetching price actually reflects the limitations of the managed services market from a vendor perspective.
2. SolarWinds Is a Direct Company -- So What?
Criticism is being leveled that N-able is folding under a primarily direct systems management company. SolarWinds, based in Austin, Texas, is guilty as charged. Guess what? So is N-able.
We all like to think of RMM and PSA vendors as being “channel-friendly.” The truth is that all these companies are direct sales organizations. None have an indirect sales model because the consumers are MSPs. The channel is the target marketplace. The end customers having their servers, endpoints and networks monitored by the MSPs have no idea -- nor do they care -- what RMM tool is being used to perform remote break/fix.
Yes, RMM and PSA vendors spend a lot of time and money educating and enabling MSPs. And, yes, they’re channel friendly, but it’s in their interest to be so. If their MSP users are growing, they will need more RMM and PSA licenses, which will contribute to the RMM and PSA vendors’ growth. This isn’t a bad thing. It’s no different than Salesforce.com providing training and support to its customers.
3. Will N-able Users Remain in the Fold?
This is such a specious statement, it’s almost not worth commenting on. People and pundits immediately speculate mass exoduses of users following a vendor acquisition or industry consolidation. It’s complete bunk.
Every M&A results in some fall-off of users. Sometimes, it’s individual preference because an MSP doesn’t want to work with the new parent company. Sometimes, competitors pounce to displace users with special incentives or FUD (fear, uncertainty and doubt). And sometimes, the new company decommissions partners to focus on top performers and immediate opportunities.
Exoduses are rare. Any MSP will tell you they’re so invested in their RMM or PSA platforms, it takes months to make a rip-and-replace change. Even when MSPs make a planned transition between RMM providers, they use multiple tools to avoid disruptions. The difficulty of switching gives vendors time to get to know their customers. That will likely happen in the SolarWinds/N-able deal.
4. Now Was the Right Time for N-able to Sell
Was the SolarWinds offer so great that N-able simply couldn’t turn it down? Probably not. Managed services remains the fastest growing and most profitable segment in the channel; that’s good news for N-able and other RMM vendors. So why sell? Think investors.
In 2011, N-able received an undisclosed capital infusion from Accel-KKR, a private equity firm. As with all investment deals, venture capitalists/private equity firms want to know how they’ll get their money back (plus profit), and that’s usually covered in a plan to sell the firm or go public. Chances are, the sale to SolarWinds was partly motivated by investors wanting to cash out.
5. Rampant Consolidation is Imminent
Will SolarWinds buying N-able open floodgates for rampant consolidation and acquisitions in the managed services market? Will Microsoft Corp. or Cisco Systems Inc. buy Level Platforms Inc.? Will Kaseya International Ltd. fall under the spell of IBM Corp.? Will ConnectWise add to its empire with another RMM deal, such as buying Continuum? Anything can happen, but nothing that follows will be the result of some rush started by SolarWinds.
Again, N-able isn’t the first managed services company to get acquired. Dell Inc. bought Everdream, SilverBack and Quest PacketTrap over the last six years. Summit Partners bought the RMM assets from Zenith Infotech in 2011 and formed Continuum. ConnectWise bought LabTech to form a federation of managed services companies. M&A and consolidation are a part of business; it just happens, especially if it makes sense in terms of acquiring revenue, EBITDA and customers.
The bottom line on the SolarWinds/N-able acquisition: It’s just another M&A deal. All other speculation is sound and fury signifying nothing.
Editor's Note: An earlier version of this article misidentified the company that bought LabTech Software. That company is ConnectWise.