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ConnectWise Finally Accepts Private Equity, Preps Job Cuts
… envy of the industry. Bellini and McGee say that partner community, IT Nation, was a huge selling point for the team at Thoma Bravo.
“As a member of ConnectWise’s advisory council, I’m especially excited for what the future holds for the IT Nation,” says Ben Johnson of MSP 501er Liberty Technology. “Thoma Bravo’s long term goals align with Arnie’s vision and will allow for [ConnectWise] to move faster with many strategic initiatives.”
The company’s evolution runs parallel to that of the managed services market itself. That ConnectWise and the MSP channel “grew up” together gives it a huge edge and is likely what has enabled it to stay private up to now.
But a lack of institutional capital means a lack of liquidity for senior executives and board members, a lack of funding for highly advanced tech capabilities and a lack of resources to devote to major acquisitions, all things any company that still wants to be considered a leader in the business-management software space in the next few years needs to have.
As we’ve seen time and again in tech markets, the once-crowded field is beginning to thin, with the distance between leaders and laggards growing larger every day. For ConnectWise to hold on to that No. 1 spot, Bellini had to let go of the notion he could retain total control over the strategic direction of the company and finally accept outside investment.
“An ingestion of P/E capital will be a welcome breath of fresh air that should result in more investment in their platform, resulting in a better customer experience via greater feature sets, API capabilities and expanded product lines,” says Rob Stephenson, CEO of MSP 501er Thrive Networks.
Perhaps no other CEO than Arnie Bellini could have taken ConnectWise so far on his own. He is a growth-oriented, entrepreneurial business leader who, along with his brother David, spent close to four decades building a local computer-service provider in Tampa Bay into the leader of the PSA market, which is estimated to reach more than $14 billion by 2024. But the company is entering a different stage of life with the Thoma Bravo acquisition and has a new captain at the helm. Jason Magee, the current ConnectWise COO, will step into the CEO chair as Bellini transitions to a “strategic adviser” role.
Bellini says that two years ago, he selected three potential CEO successors. After two years of mentoring, Magee emerged as the “clear and obvious choice.” Bellini says Magee has “owned” strategy at ConnectWise and been instrumental in acquisitions such as those of ScreenConnect, HTG and Sienna.
“He’s from the industry; he’s cut from the same cloth as our partners,” says Bellini. “He’s been one of them in the industry. He understands what their trials and tribulations are. He’s walked a mile in their shoes.”
ConnectWise’s Jason Magee
Magee has a daunting first task waiting for him. As part of its strategic realignment with Thoma Bravo, ConnectWise will eliminate 110 positions before creating 70 new ones over the next five years. The positions range across a number of roles and divisions.
“We’re almost a 40-year-old company, and we’ve never done a realignment. This isn’t about cost-reduction. It’s about aligning to our strategic goals,” says Bellini. “We’ve acquired eight companies in our history; we’re overdue.”
ConnectWise has engaged an outsourced consulting company to help …
I’m not so sure that all of this consolidation is so great for the MSP industry. When you have financial masters to answer to, your 1st priority is going to be to meet the financial goals that master has defined. When we see companies go public, they automatically incur a few percentage points of inefficiency in order to meet compliance requirements – so that layer of non profitable operation needs to be sliced out of somewhere else – and that somewhere else is often at the pointy end of the business – where that business touches their customers. Suddenly experienced account managers are let go, or “promoted.” Margins get cut, requirements to stay in the game become more onerous as the business wants to have more control over everything.
I really hope this doesn’t happen, but it is a possibility that I’m sure the team at CW thought long and hard about. Perhaps their culture can win out and they can really put the infusion of capital to work for the better and continue to dominate the PSA market. Part of the article talks of cuts (overall) in staff, but I don’t see it, given how much CW has grown over the years, that they will ever end up reducing headcount. That 40ish staff they are talking about being excess in this article? There are more than that many job openings right now.
I have some ideas on where their increased dev funds could be spent that would propel them further into the lead and watch everyone else play catch up.
There sure are a lot of MSPs that agree with you. The Reddit threads & social platforms are full of worries about whether or not this will result in cuts to customer support, especially, which is already a source of concern for a lot of CW partners. Bellini says those job cuts will turn into openings in years 2-5 of this five-year “realignment” plan, but given how fast all providers need to spin up more advanced security products, services & support, not to mention CW’s stated mission to make security a key pillar of their business strategy moving forward (like everyone else), I can’t imagine them not creating room to invest in that very expensive talent. Still, to your point, private equity is typically very focused on “expense management” (i.e. cutting costs to achieve a certain P&L and make up for the debt incurred with a buyout of this size). CW has had quite a few acquisitions, and Bellini/Magee have a valid point that it’s time to trim some fat and get all the businesses working in sync. But that can’t solely come from job cuts. It’s gotta come from somewhere else–we’ll just have to see, but your worries are shared by many.