Five burning questions following Kaseya's $6.2bn acquisition of Datto

CRN breaks down our five key talking points following Kaseya’s announced acquisition of Datto yesterday

Kaseya announced yesterday its intention to acquire IT management software rival Datto for $6.2bn. Although CEOs from both sides said the deal would create new opportunities for MSPs, some questions have been left unanswered in yesterday's announcement.

CRN breaks down our top five talking points from the acquisition..

Is Datto's $6.2bn price tag justified?

The equity consortium behind the acquisition values Datto at $6.2bn.

The price represents a whopping 52 per cent premium on Datto's stock price of $23.37 a-share on 16 March 2022.

The valuation is more than 40-times higher than Datto's adjusted EBITDA last year which was $175.4m.

When Datto IPOed in 2020, it was valued at $4m, meaning that its value has risen by more than $2bn in less than two years.

Datto has been showing impressive double-digit growth in revenue and profit since it IPOed and was forecasting revenues of $720m to $726m for this year, up 16-17 per cent on 2021, and an adjusted EBITDA of $163m to $168m, up 23 per cent.

Although these figures are impressive, other tech companies that recently IPOed are growing much faster. Cloud-based data storage firm Snowflake, which IPOed shortly before Datto, more than doubled its revenue for the 12 months ending 31 January 2022 to $1.22bn. Meanwhile, SentinelOne grew its top line by 120 per cent to $204.8m in its first set of financial results after it went public last year.

The equity consortium behind the acquisition must see a real long-term opportunity in synergies with Kaseya to justify the $6.2bn price tag, and time will tell whether the move pays off.

Will Datto partners jump ship?

An acquisition of this size is likely to bring with it a multitude of complexities to navigate for Kaseya, Datto and its MSP customers.

Datto ended 2021 with more than 18,500 MSP customers, an increase of 1,500 on the previous year. While Kaseya doesn't reveal the number of MSPs it sells to, it claims that more than 40,000 organisations globally use at least one of its software solutions.

Many MSPs on Datto's side may be considering how their RMM, PSA and backup offerings will be affected by the acquisition. Although moving customers' core infrastructure away from Datto would be both a costly and time consuming exercise, it may be the preferred route for many MSPs that do not want to deal with the uncertainty that the Kaseya acquisition could bring with it.

Competitors like N-able and ConnectWise could be set to benefit from any short-term fallout from the acquisition while Datto and Kaseya will need to convince MSPs that they can resolve overlap with their products and services and minimise disruption throughout the process.

Are there cybersecurity concerns for Datto partners?

Datto partners may also be left feeling concerned by a cyber attack last year against Kaseya, which led to 50 of its MSP customers and as many of 1,500 organisations being breached.

The "sophisticated" attack from Russian-speaking ransomware group REvil targeted its on-premise VSA solution.

Although Kaseya CEO Fred Voccola praised his company's security processes for preventing the attack from being much larger, there's the question about whether the firm has been able to re-establish trust with its MSP customers following the attack.

Users on a reddit thread discussing Kaseya's acquisition of Datto have voiced these concerns, with some claiming that the latter takes security more seriously than the former.

Granted, Kaseya is far from being the only IT management vendor to suffer a cyberattack. At the end of 2020, SolarWinds made headlines after falling victim to a supply chain attack which gave Russian intelligence access to as many as 18,000 SolarWinds customers including US government agencies.

And just a few months earlier, MSPs were again in the firing line after another cyberattack, this time against ConnectWise, affected partners due to a flaw in its software.

So while Kaseya is far from being the only vendor in the IT management software space to fall victim to a security breach, there's no doubt that the attack is still fresh in the minds of many Datto MSPs and trust remains a central theme in their feelings towards Kaseya.

Why didn't Datto acquire Kaseya?

Datto is a larger business than Kaseya in every sense. It was valued at $4bn when it IPOed in 2020, while Kaseya's CEO said in early 2021 that his company had a valuation of $3bn.

Datto has a headcount of 1,750 staff in 2020, while Kaseya's chief exec claimed in 2022 that its headcount stood at "over 1,300".

While Datto has revenues of $618.7m, Kaseya CEO said the business had around $360m in annual billings when we spoke to him in 2021.

And, seeing as Voccola has been very vocal about his dreams of taking Kaseya public, wouldn't it have made more sense for Datto, which is already listed on the NYSE, to acquire Kaseya? The master plan may be for Kaseya to now look to IPO itself following the acquisition, but the mountain of work ahead in integrating the Datto business likely means it will be a while before we see its next move.

How will ConnectWise and N-able respond?

The deal will likely mean that ConnectWise has been knocked from its perch as the world's largest IT management software company.

It claims to sell to its business management platform to more than 30,000 MSP customers in 65 countries, compared to Datto's 18,500, which will become much larger after combining with Kaseya.

ConnectWise itself is not afraid of making bold moves to expand its reach and offering. Its 2019 acquisition of MSP tools rival Continuum is testament to that, and perhaps we will see ConnectWise make another big move in order to meet the scale of the Kaseya-Datto business.

Meanwhile, N-able's CEO John Pagliuca has already responsed to the deal, claiming that he believes the acquisition will bring "substantial challenges" for Datto and Kaseya.

"We believe that a transaction of this magnitude is a clear validation of the value and power of this industry to serve the large and growing SME IT market. It's also a calculated disruption undertaken by both Kaseya and Datto, where they obviously felt that this would net out to a positive outcome for their stakeholders," he said.

"Transactions like this typically bring substantial challenges, such as successfully combining two different cultures and realizing potential synergies. For our part, N-able will remain laser-focused on our mission to empower MSPs with the technology, training, tools, and people to help ensure our partner MSPs reach their goalspartner MSPs reach their goals."