Five thoughts on the N-able acquisition

Larry Walsh critiques the trumpeted effect on the channel of the SolarWinds purchase

Congratulations to N-able Technologies: its acquisition by systems management vendor SolarWinds for $120m (£79.4m) caps a decade-long journey in the remote monitoring and management (RMM) segment in which the Canadian company was a pioneer.

The channel community lit up on hearing the news, and the frenzy of attention has continued. Many questions have been raised as to the significance of the deal, whether N-able's partners will remain with SolarWinds, and what it means to the managed services community.

Here are a few thoughts from me.

Firstly, $120m isn't a lot.

Some people want to make a big deal out of the price for N-Able. No one is going to sneeze at $120m - US or Canadian - but what does it say about the entire managed services segment? Speculation is that N-able got five times its revenue, which would peg its annual till between $20m and $25m.

For a company built around supporting businesses with recurring revenue streams and having thousands of customers, that level isn't all that impressive.

The truth: More than a decade into the managed services era, the leading RMM and professional services automation (PSA) vendors haven't broken out in the way companies like Box (collaboration) or Kaspersky Lab ZAO (antivirus) have.

The fetching price actually reflects the limitations of the managed services market from a vendor perspective.

Criticism has also been levelled that N-able is folding under a primarily direct systems management company. SolarWinds, based in Austin, Texas, is guilty as charged. Guess what? So is N-able.

We all like to think of RMM and PSA vendors as "channel-friendly". The truth is though that all these companies are direct sales organisations. None have an indirect sales model because the consumers are MSPs.

The channel is the target marketplace. The end customers having their servers, endpoints and networks monitored by the MSPs have no idea - nor do they care - what RMM tool is being used to perform remote break/fix.

Yes, RMM and PSA vendors spend a lot of time and money educating and enabling MSPs. And, yes, they're channel friendly, but it's in their interest to be so. If their MSP users are growing, they will need more RMM and PSA licences, which will contribute to the RMM and PSA vendors' growth.

This isn't a bad thing. It's no different from Salesforce.com providing training and support to its customers.

Will N-able users remain in the fold? This is such a specious question it's almost not worth comment. People and pundits immediately speculate about mass exoduses of users following a vendor acquisition or industry consolidation. It's complete bunk.

Every M&A results in some fall-off of users. Sometimes, it's individual preference because an MSP doesn't want to work with the new parent company. Sometimes, competitors pounce to displace users with special incentives or FUD.

And sometimes, the new company decommissions partners to focus on top performers and immediate opportunities.

Exoduses are rare. Any MSP will tell you it is so invested in its RMM or PSA platforms that it takes months to make a rip-and-replace change.

Even when MSPs plan a transition between RMM providers, they use multiple tools to avoid disruptions. The difficulty of switching gives vendors time to get to know their customers. That will likely happen in the SolarWinds and N-able deal.

Was the SolarWinds offer so great that N-able simply couldn't turn it down? Probably not. Managed services remains the fastest growing and most profitable segment in the channel; that's good news for N-able and other RMM vendors.

So why sell? Think investors.

In 2011, N-able received an undisclosed capital infusion from Accel-KKR, a private equity firm. As with all investment deals, venture capitalists and private equity firms want to know how they'll get their money back plus profit, and that's usually covered in a plan to sell the firm or go public.

Chances are, the sale to SolarWinds was partly motivated by investors wanting to cash out.

People are also predicting rampant consolidation.

Will SolarWinds buying N-able open floodgates for rampant consolidation and acquisitions in the managed services market? Will Microsoft or Cisco buy Level Platforms? Will Kaseya fall under the spell of IBM ? Will ConnectWise add to its empire with another RMM deal, such as buying Continuum?

Anything can happen, but nothing that follows will be the result of some rush started by SolarWinds.

N-able isn't the first managed services company to get acquired. Dell bought Everdream, SilverBack and Quest PacketTrap over the last six years. Summit Partners bought the RMM assets from Zenith Infotech in 2011 and formed Continuum.

Continuum bought LabTech to form a federation of managed services companies. M&A and consolidation are a part of business; it just happens, especially if it makes sense in terms of acquiring revenue, EBITDA and customers.

The bottom line on the SolarWinds-N-able acquisition: It's just another M&A deal. All other speculation is sound and fury signifying nothing.

Larry Walsh is chief executive and president of Channelnomics

As part of our special editorial relationship, CRN is republishing this article from Channelnomics