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The year begins with a bang for channel-relevant investments and deals.
January 25, 2019
By Kevin Casey
We weren’t kidding when we said recently that you should “expect another flurry of channel-relevant M&A deals in 2019.”
If anything, we should have said to expect that flurry in January. There has been plenty of deal activity just in the first weeks of the year, both among MSPs and other partners, as well as channel-relevant vendors.
Consider the recent announcement that private equity firm Renovus Capital has taken a controlling interest in Denver-based Tempus Nova, a reseller of Google Cloud Platform and Google’s G Suite apps. As Manan Shah, a partner at FOCUS Investment Banking, which advised Tempus Nova in the deal, noted in a release: “This transaction is a good testimony to growing demand among investors for companies with cloud-based offerings.”
Indeed, the appetite for cloud service providers seems almost limitless at the moment. Security is another area attracting lots of investor attention.
There are myriad trends in play here, including a voracious appetite among private-equity investors for partners that check off the right boxes such as, again, cloud and security solutions.
Those trends include a mix of good and not-so-good news among partners. Anurag Agrawal, principal analyst at Techaisle, says that his firm’s recent survey of 870 channel partners found that seven in 10 (70 percent) MSPs expect their revenues to grow this year. The not-so-good news: “A whopping 30 percent are either expecting flat or declining revenues in the next year,” Agrawal tells Channel Futures.
That’s one factor that explains another stat from Techaisle’s survey: Thirty-five percent of MSPs foresee mergers or acquisitions in their three-year plans.
Techaisle’s Anurag Agrawal
“MSPs, who are looking to optimize the efficiency of their service delivery, will eventually need to acquire new customers and connect with firms that have relationships but have not streamlined service delivery,” Agrawal tells us. “It is a sensible approach.”
M&A activity is up, private equity firms are throwing their weight around in the channel, and markets are on a roller-coaster ride. You need to Follow the Money. We’re here to help.
Agrawal says MSPs with an eye of outside investment or M&A deals are particularly well-positioned, because he notes that technology businesses with a monthly recurring revenue (MRR) model are being valued at high multiples, especially compared with partners who are heavily dependent on product transactions.
“MSPs would appear to be in the best position to attract outside investors,” Agrawal says.
Forrester’s Jay McBain
M&A and funding activity remain white-hot for the channel-relevant vendors too. Many of the same factors are in play, including loads of investment capital looking for a home. There’s also a numbers game at work here: Some segments are simply oversaturated, so consolidation is virtually inevitable.
Forrester analyst Jay McBain points to the security space as a good example.
“There are just too many security vendors,” McBain told us in a recent interview. “We’re going to see some private-equity work there to create some broader six- or seven-category security companies.”
Indeed, consolidation among security vendors is already well underway at the start of this year. Here are some of the recent deals and announcements that happened in the first weeks of 2019 to catch you up to speed, starting with …
… a trio of deals in the security space.
Zix to Buy AppRiver: Email security firm Zix announced a deal to buy cloud-based security company AppRiver for $275 million in cash. The deal is expected to more than double Zix’s annual revenue, to north of $180 million. AppRiver also brings a partner community of around 4,500 MSPs along with it. Private-equity firm True Wind Capital will invest $100 million, via a convertible preferred equity investment, as part of the deal.
Check Point to Beef Up Cybersecurity Architecture with ForceNock Buy: Following its October 2018 purchase of Dome9, Check Point Software announced it has acquired ForceNock, an Israeli cybersecurity firm. Check Point’s VP of products, Dorit Dor, tells our Edward Gately that the deal will help beef up the company’s machine-learning capabilities, and eventually become part of a later product update that will eventually be available via its VARs.
Radware to Acquire Shieldsquare: Radware announced an agreement to buy ShieldSquare to boost its cloud-security capabilities. ShieldSquare’s particular specialty is bot-management tools that help businesses distinguish between human and bot traffic on their web and mobile apps. The deal is expected to close this quarter.
CDW to Acquire Scalar Decisions: CDW announced it will acquire the technology services provider Scalar Decisions, expanding its already considerable footprint in Canada. Scalar currently brings in around CAD $250 million in annual revenue. M&A advisory firm martinwolf noted in its analysis of the transaction that CDW isn’t a “serial acquirer,” preferring quality over quantity. It also pointed out that CDW’s public comments about the technical value of the deal focused on cloud, security, and managed services.
SilverSun Technologies Acquires Partners in Technology: SilverSun Technologies, a VAR focused on enterprise applications, announced that it has acquired Partners in Technology, a Sage Software reseller in the Chicago area with 2018 revenues of $1 million-plus.
360insights Acquires MTC Performance: Finally, all signs point to continued M&A activity in what McBain refers to as the channel software stack. In the channel incentives segment, in particular, venture capital-backed 360insights recently announced the acquisition of MTC Performance. That follows Incentive Solutions fully absorbing Loyaltyworks (a prior acquisition) at the end of 2018, following a recapitalization deal with private equity firm The CapStreet Group. Some 14 percent of channel software firms rolled up in M&A deals last year, McBain said.
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