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 Channel Futures

Strategy


ConnectWise CEO: We’re On the Acquisition Trail

  • Written by Joe Panettieri 1
  • July 8, 2013
ConnectWise CEO Arnie Bellini is exploring the software market for potential investments and acquisitions. The Modern Office Suite, featuring ConnectWise, LabTech and Quosal, will most certainly expand.

ConnectWise CEO Arnie Bellini says his software company remains in acquisition mode. Among the key goals: Continuing to expand the Modern Office suite — including ConnectWise, LabTech and Quosal — with more business and technology management capabilities. Potential moves, acquisitions or investments could surface on or before the IT Nation Conference (Nov. 13-15, Orlando, Fla.).

The key takeaway: While some MSP-centric companies are selling (recent examples: Kaseya sold to Insight; Level Platforms sold to AVG; N-able sold to SolarWinds), ConnectWise remains in buying and investment mode. “We’re very excited for all the founders who have sold in the past few weeks and we wish them the best,” Bellini told MSPmentor. “But as for us, we’ll continue to climb the mountain. We have more work to do. We’re in acquisition mode. We’re a buyer in this market.”

To paint his strategic picture, Bellini points to the Modern Office suite’s momentum and compares it to Microsoft Office.

  • While Microsoft Office has Word, Excel and PowerPoint, the Modern Office has ConnectWise, LabTech and Quosal for business management, technology management and sales proposal engagement. 
  • But don’t forget, Bellini adds, Microsoft Office has additional pieces like OneNote. Similarly, the Modern Office suite will gain more and more capabilities — either through home-grown software development, investments or acquisitions.

Rapid Growth, More Coming?

ConnectWise Capital, launched in January 2010, is a $20 million investment fund designed to “incubate innovation” in the IT channel. So far, ConnectWise Capital has invested in LabTech, Quosal and CharTec. The results have been impressive:

  • ConnectWise had about 1,700 partners around four years ago. Today, that figure is 5,500 partners.
  • LabTech had roughly 180 partners three years ago. Today, the figure is 3,500 partners.
  • Quosal had 400 partners two years ago. Now, it’s 1,600 partners.
  • CharTec has emerged as a key training, BDR and HaaS provider in the MSP market. And there are rumors that a file sharing partnership is coming soon…

“The growth has been exciting,” said VP of Worldwide Sales Adam Slutskin. “We’re adding almost 250 partners a month — and it isn’t slowing down.”

Executive Chatter

Slutskin, LabTech CEO Matt Nachtrab and additional executives sat down with me during the Automation Nation conference in June. Nachtrab said LabTech revenues grew 59 percent in Q1 2013 vs. Q1 2012. But much like Bellini at ConnectWise, Nachtrab indicated that LabTech wanted to continue climbing the mountain of growth rather than seeking any near-term exit. (More on my meeting with Nachtrab soon.)

So where will growth come from? Certainly, ConnectWise and its sister companies can grow organically both in North America and abroad. But technology partnerships and potential investments will also be important. “We are seeing a lot of activity because of our capital arm,” said Bellini. ” A lot of great ideas are coming to us and wanting to partner or become part of the Modern Office.  We will be capitalizing on plugging any remaining holes in Modern Office.”

At the same time, Bellini is betting that rivals will gradually drift to an enterprise market focus — taking their eye off the MSP, VAR and IT service provider industry. “We’re going to keep serving the community we know and love: The IT Nation. I believe the others [acquired MSP software rivals] will migrate toward enterprise customers.”

Where will ConnectWise potentially invest?  Keep an eye on Director of Strategy Gerwai Todd. When ConnectWise Capital examines potential investments or acquisition targets, Todd is typically involved in the research and due diligence. 

Tags: Cloud Service Providers Digital Service Providers MSPs VARs/SIs RMM/PSA Strategy

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10 comments

  1. Avatar Anonymous July 9, 2013 @ 1:48 am
    Reply

    labtech will grow but will
    labtech will grow but will revenue grow ? they are giving away software as nuts! i will not be surprised to see they being bought over

    • Avatar Joe Panettieri July 9, 2013 @ 3:45 pm
      Reply

      Anonymous: They had 59
      Anonymous: They had 59 percent REVENUE growth in Q1 2013 vs. Q1 2012. I do realize that LabTech was widely accused of deeply discounting its software back around 2011 and in early 2012. But I think it’s fair to say the company has a serious revenue stream at this point…
      -jp

  2. Avatar Anonymous July 10, 2013 @ 2:48 pm
    Reply

    Did you read the article? And
    Did you read the article? And LabTech can’t simply be bought out as it’s owned by ConnectWise. Again, per the article, Bellini says they’re not selling, they’re buying.

  3. Avatar Joe Panettieri July 10, 2013 @ 4:17 pm
    Reply

    Hi Folks: Anonymous comments
    Hi Folks: Anonymous comments are welcome. But we push hard for readers to reveal their identities. If you want to weigh in with comments, please try your best to tell us a bit about yourself instead of remaining a mystery person…
    -jp

  4. Avatar Adam Slutskin July 10, 2013 @ 6:17 pm
    Reply

    Hello Joe.
    I’d like to take

    Hello Joe.

    I’d like to take a quick moment to address the comments on “deeply discounting” LabTech Software. As a clarification, LabTech built a price book as we ramped adoption of the platform in the IT Solution Provider community that we thought was fair and competitive – while allowing us to be profitable. Nothing has changed on that front. I’m confident we’re still 30 – 50% less expensive than most of our competitors. We continue to offer LabTech on-premise or in the cloud in either a purchase or subscription model. Our mission is choice. I know every vendor wants to say they are the best – and we’re really no different. All we ever ask or suggest is to trial LabTech and decide for yourself. And we believe our value proposition vastly transcends more than just software.

    Thanks

    Adam Slutskin
    VP of Sales
    LabTech, ConnnectWise, Quosal

    • Avatar Joe Panettieri July 10, 2013 @ 6:41 pm
      Reply

      Hey Adam: Thanks for that
      Hey Adam: Thanks for that background. Just wanted to confirm I spotted the comment.
      -jp

  5. Avatar D. Griffen July 19, 2013 @ 6:07 pm
    Reply

    Joe – I love your columns –
    Joe – I love your columns – but on this one I think you need to dive a bit deeper. Pure revenue growth is not the same as cash-flow. I suspect that the LT model uses an accrual method of accounting – meaning that even though they spread the $15,000 in software over 36 monthly payments, they are still recording the income as $15k for that year. Most MSP owners truly know the difference… We live it. Revenue also doesn’t account for cancellations. A true measurement would be what is the current active partner balance per year and comparing that growth. Either way – I agree with Anonymous…-er, the first one. My theory is that the CW trio offers out stock options as incentives to their employees. It would be the only logical way to get people from Kaseya to work there (there are at least 5 – including Mr. Slutskin himself). Unless there is a stock buyback plan in place, the only way these options mature is via a liquidation event (i.e. sale or IPO). Either way – the company will eventually lose control of itself as either stockholders or a VC will run it. Of course – I may be way off in this… but we’ve all heard this story from just about every major player in the market. Are we really to think that the CW trio will act different if presented with millions of dollars in buyout?

    • Avatar Joe Panettieri July 19, 2013 @ 8:34 pm
      Reply

      D. Griffen: Thanks for
      D. Griffen: Thanks for pushing us to dig deeper. I have a few immediate reactions and will also work on some longer-term items.

      1. How does LabTech recognize revenue?: You suspect that LabTech accounting recognizes all revenue up front rather than spread out over the length of the contract. Generally speaking I doubt that since Arnie and brother David Bellini are CPAs. But I’ll check. Also, in the future when I speak with LabTech about business growth, I’ll be sure to ask about/clarify bookings vs. revenues.

      2. Cancellations: Sure, LabTech loses some customers (as do other RMMs). Again, I doubt LabTech is somehow including lost MSPs in their revenue estimates. Why play that game?

      3. Stock Options: There’s a bigger story here. We’re working on it. More details soon. And it’s an industry story rather than a ConnectWise story. But back to ConnectWise itself: Even if they IPOed that doesn’t guarantee loss of control. Here’s an example: I once worked for a media company that IPOed but the CEO and co-founders retained more than 50% of the shares. The result was some staff exercising stock but the executive team (rather than third-party shareholders) maintaining control of the company.

      As Yoda once said: Hard to predict the future is. Generally speaking: I agree that stock options are worthless without a material event (IPO, company sale). But that doesn’t always mean “loss of control.”

      Again, I appreciate your comment and readership. Thanks for raising some key questions. We’ll keep them in mind as we pursue and prepare more coverage.
      -jp

  6. Avatar Adam Slutskin July 20, 2013 @ 1:34 pm
    Reply

    Hi. 
    Thanks for the feedback.

    Hi. 
    Thanks for the feedback. Open dialogue is great, especially with all of the recent acquisition activity. We have been extremely busy having to answer this question lately from prospects looking for a stable vendor partner – “why is ConnectWise, LabTech & Quosal any different”?
    First from a colleague perspective, many of us at the ConnectWise family came from other industry vendors such as Autotask, LPI, Kaseya, etc. Just like any of us who have worked for multiple companies, we had our reasons. But one thing we all share in common at ConnectWise, LabTech & Quosal is that we are fiercely dedicated to and passionate about the MSP/ITServices community that we serve. We all truly believe in the ConnectWise mission statement. We all love working here – and have a great time doing it. This is why we have an extremely low colleague turnover rate. I believe this passion carries over to our partners where we also have a very low partner (customer) turnover rate. Our community really believes and trusts in the value of what we provide with the ModernOffice Suite – ConnectWise, LabTech, Quosal & CharTec as well as all of the supporting solutions we offer for MSPs/IT Service Providers. 
    As employees, We all love having equity in the ModernOffice companies. I have had equity or promised equity in every company I have ever worked for (except for the Air Force). It is a great incentive knowing you have a extra stake in your company if or when a event were to happen. But by no means do we hope it happens. We LOVE working here and the MSP/IT Services community we work with. I will say this – based on what I have heard has happened at other vendors who went through a event recently, I would be very disappointed as a employee who thought I had equity and then to get a less then expected payout or none at all.
    We are extremely thorough in how we manage & monitor revenue and growth. We do subtract terminated contracts from the revenue. The bottom line is this – each month we are becoming more and more profitable. The MRR is growing exponentially which is what every successful company wants. But we aren’t sitting on all of the profits – in the coming months we are investing a lot of it (our own money, not borrowed) into new technologies that will benefit our Partner Community even further. This is why every prospect should at least evaluate the ModernOffice before selecting a vendor. Don’t take our word for it – take a look for yourself to experience the integration/innovation we are creating between a RMM, a PSA, quoting & proposal software, back-up & security solutions, etc. We have no intention of slowing down anytime soon. We are not pursuing a event. We are here to stay, supporting and working with the MSP community that we are passionate about. We did not come here for the equity but it sure is a nice incentive for any employee! 
    FYI – if ever in Tampa, come visit our campus. We have 2 buildings of 500 fun loving colleagues. (and we are hiring – growth is continuing). If you cant make it, take one of our virtual tours on YouTube – it really is a cool place to work! Just ask anyone who has visited us or come see for yourself.

    Adam

  7. Avatar Adam Slutskin August 7, 2013 @ 4:44 pm
    Reply

    Hello. if anyone is
    Hello. if anyone is interested in viewing the ModernOffice Suite CEO webinar today at 2pm EST, here is the link: http://www.ModernOfficeSuite.com/CEOWebinar. It will provide further insight into what I previously commented on above.

    Thanks.

    Adam

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