ConnectWise Finally Accepts Private Equity, Preps Job Cuts

The last of the old-guard RMM/PSA lifestyle companies has bitten the bullet and taken outside cash. ConnectWise on Monday announced its intention to be acquired by investment firm Thoma Bravo for an undisclosed amount, finally joining other segment leaders like Datto, Continuum, SolarWinds and Kaseya in the next stage of market maturation.

Not six months ago at Channel Partners Evolution, Brian Troy, director of product marketing at ConnectWise, sat on a stage with Rob Rae of Datto and Jim Lippie of Kaseya and defended the company’s refusal to accept private equity, saying that it allowed ConnectWise to make acquisitions it might otherwise not be able to.

“Regarding private equity, we purchased HTG, an acquisition that private equity may not have done. That’s the DNA of our company,” Troy said.

Unsurprisingly, Rae and Lippie jumped on the brag, saying that it was outside capital that allowed Datto and Kaseya to stay ahead of the market with product innovations and acquisitions. A very tense discussion followed, adding to the growing number of voices wondering if ConnectWise would ever take institutional capital, and if not, how in the world it hoped to hold on to its spot as the MSP management software market leader.

In the last several years, ConnectWise has found itself in increasingly lonely territory as its main competitors almost to a company turned to private equity to fuel their growth strategies. Datto was acquired by Vista Equity Partners and merged with stalwart MSP software provider Autotask in 2017. Kaseya, which was bought by Insight Venture Partners in 2013, has used its improved cash flow to make a series of strategic product and service advancements through a string of high-profile, high-cash acquisitions such as those of Unitrends, Spanning and IT Glue in 2018. Continuum bought business intelligence solution provider BrightGauge last month and also has devoted significant resources to building out its own SOC and NOC. SolarWinds, which was once public then taken private in 2015 when it Thoma Bravo bought it, was able to completely retool a segment of its business, combining with N-Able to create SolarWinds MSP.

The fact that ConnectWise remained the lone privately held leading provider has been the topic of much conversation as the MSP software space underwent a level of infusion and consolidation last year that it’s never seen before. Now, we learn that the company’s CEO, Arnie Bellini, had been interviewing private-equity firms, talking with strategic investors and exploring the idea of an IPO for the last five years before landing on Thoma Bravo.

ConnectWise’s Arnie Bellini

“It’s been a deliberate activity,” Bellini told Channel Futures. “We’ve been looking at where to take the company to the next level. We knew we could do that simply organically. We have big plans, and we needed a partner to help us accelerate those plans.”

Thoma Bravo also owns ConnectWise competitors Continuum and SolarWinds along with a slew of other software as a service providers like Barracuda, McAfee and Riverbed, as well as massive channel partners like Sirius.

ConnectWise has managed to achieve remarkable growth without taking outside capital. It is among the first and remains the largest MSP management software provider, with a large, fiercely loyal partner base that’s the …

… 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.

“[This is] probably a very positive development for ConnectWise customers,” says Josh Kotler, CEO of Western Digitech, a 2018 MSP 501 company. “It was clear that ConnectWise was not going to invest heavily in a next generation platform, and now perhaps the new owners will.”

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 …

… workers affected by the layoffs polish their resumes, land interviews and connect with recruiters.

“These are all great, very talented people,” says Bellini with confidence. “They’ll be scooped up very quickly. We’re putting money, time and effort in making sure they’re getting to their next opportunity.”

On the flip side, the deal will make about 70 ConnectWise employees millionaires. The 100 percent-employee-owned company will distribute $270 million amongst non-founder workers.

Magee says that it will be business as usual when he assumes the CEO role, with a continued focus on cybersecurity solutions, product integrations and as-a-service technology.

“I’ll wear flashier suits and have a lot of energy,” laughs Magee. “But otherwise it’s going to be a lot more of the same. We’re going to execute on the strategy that Arnie and I have outlined for the company the last three to five years.”

As for Bellini, he says he’ll continue to be heavily involved with the company from his seat on the board and role as strategic adviser, but that he has big plans for all the free time he’s about to have.

“I won’t have as much to do, so my challenge will be to swim from Europe to Africa across the Strait of Gibraltar,” he tells us. “Jason said I couldn’t do it until I wasn’t CEO.”