Is Private Equity Good for Managed Services Software Market?

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The answer requires a close look at each individual deal.

Reasons for concern: Some private equity firms invest in technology companies that are under duress. Those types of deals often involve management changes, cost-cutting initiatives and simplified business plans to improve balance sheets and focus on one or two growth opportunities that improve company valuations. Some legacy products — and legacy managers — often get shown the door. The steps improve business focus but sometimes leave customers and partners with dead-end products.

Reasons for hope: Now here’s the good news in the managed services market. The Zenith RMM spin-off appears to be focused on growth-oriented initiates rather than cost-cutting. And I’m confident that a second private equity deal, coming within two weeks, will likely involve an accelerated growth strategy for another managed services software company.

In an email exchange with MSPmentor, my source said the recent and forthcoming private equity deals are clear indications that deep pocketed investors are starting to discover the promise of the managed services market. The source notes that managed services software companies have helped to automate SMB technology management. But more investment is required to ensure managed services becomes a de facto standard within the SMB sector, while the IT automation tools gradually push into mid-market and enterprise corporate IT departments.

MSPmentor’s Spin

So what’s my opinion? It takes time to measure the value of private equity investments. Summit Partners and Zenith RMM have to work hard to ensure Zenith’s MSP partners continue to see value from the company’s remote monitoring software and NOC (network operations center) services. And the next private equity deal, expected to surface within two weeks, will require a similar commitment to MSPs that bet their businesses managed services software.

Also of note: There are clear differences between private equity investments and traditional merger and acquisition deals. We’ve previously seen straight acquisitions — Quest Software buying PacketTrap, for instance. But more recently I haven’t seen too many technology companies buying up managed services software companies. It suggests to me that the overall managed services software market is “good” — but there still needs to be some more incubation time to make this a “great” market for more software vendors.

That’s where private equity potentially enters the picture.