Managed Services: HoundDog Acquired, Who’s Next?

When GFI Software today announced plans to acquire HoundDog Technology Ltd. — a SaaS-driven remote monitoring and management company — my first question was an obvious one: Who’s next? Is consolidation about to accelerate in the managed services market? Why or why not? Here are some initial thoughts… including some whispers involving Hewlett-Packard and venture capitalists.

First, some background on the GFI-HoundDog deal. According to a GFI press release:

For GFI, a leading Infrastructure solution provider for small and medium-sized businesses, the HoundDog technology – that provides Managed Service Providers (MSPs), Value Added Resellers (VARs) and IT support organizations with an easier, more affordable way to monitor and manage their client networks – perfectly complements GFI’s plans to provide the channel with the best applications and solutions available to help them manage and grow their business.

GFI assists network administrators with network security, content security and messaging solutions. The company has offices in the US, Malta, UK, Hong Kong and Australia. The GFI ecosystem includes 200,000 installations worldwide and more than 10,000 channel partners, the company says.

Meanwhile, HoundDog Technology Ltd. was established in early 2003. The company’s customer base includes more than  1,700 VARs, Managed Service Providers (MSPs) and independent IT support companies.

I’m double-checking, but I don’t believe financial terms of the HoundDog-GFI deal were disclosed.

The Bigger Picture

I don’t believe the GFI-HoundDog deal is an isolated event. If you piece together a few independent nuggets of information you begin to see the bigger picture — which indicates that we’re poised for accelerated MSP software industry consolidation.

Let’s start with an industry titan. A well-placed source tells me Hewlett-Packard has been on an MSP software fishing expedition, trying to reel in potential acquisitions at deflated market prices. But HP’s efforts have cooled in recent weeks as the stock market has recovered.

Also of note:

• LogMeIn and SolarWinds in June and May 2009, respectively, launched successful IPOs — helping peer MSP software providers to set their valuations for potential M&A or IPO activity.
• Nimsoft in May 2009 acquired Cittio’s assets.
• ConnectWise CEO Arnie Bellini, in a July 2009 interview with MSPmentor, disclosed his privately held company’s anticipated revenue and bottom-line figures for 2009. Bellini said he’s using R&D to help educate ConnectWise’s customers and grow the MSP market. But the financial figures could potentially help industry watchers to set MSP software industry valuations.
• Sparxent, Inc., an IT and business solution provider, today (July 28) acquired Cemaphore Systems, Inc. — which specializes in email uptime and email data migrations across on-premise and cloud systems.
• SpringSource acquired Hyperic, an open source IT management specialist, in May 2009.
• Newcomers like Paglo and Severa are touting their respective SaaS models to continue expansion and attract SaaS eyeballs.

Now, the clinchers: In May 2009, I heard from a venture capitalist looking to perhaps roll up several MSP software companies into a single entity. Fast forward to July 2009, and I’ve heard from three separate venture capitalists looking to make moves in the MSP markets.

Please note: I am NOT suggesting that all MSP software providers are performing well. Some may sell-out from a position of strength. Some may exit because of financial weakness.

Either way, get your financial records in order. Consolidation isn’t coming. It’s here.

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