Datto is currently exploring the possibility of a sale, with private equity firms showing interest in the MSP technology provider. Datto offers a range of products and services to help organizations manage their data more effectively. They provide backup, disaster recovery, and other services to help protect your business from downtime or data loss.
Datto’s stock stood at US$25.60 per share on Thursday (March 17) morning, up about 9% from the day before. Datto is currently worth $3.7 billion and is backed by Vista Equity Partners, which owned 39 percent of Datto’s shares as of Dec. 31. Datto first went public in October 2020. Since then, shares have fallen 13%.
“Given the previous and ongoing consolidation in the MSP vendor market space, the news of Datto potentially putting itself on the auction block is not a surprise. On the contrary, with the year-over-year upside in their revenue and net profit, their ongoing attractive growth trajectory, and the robust state of the MSP market in general, this appears to be a smart move, at least from the point of view of maximizing investor value. It would be a surprise if they do not receive a number of interesting offers”, said Jeremy Kushner, Co-Founder and CEO of BACS IT Consulting.
Like Kushner, Joe Cannata, owner of Techsperts LLC, does not see the news of a potential sale as a surprise.
“It’s not surprising to hear Datto is looking for buyers. Datto is one of the big players in this space. This seems to be common in the MSP vendor space. It seems these companies are frequently merging or being bought out. It’s not easy to guess what the future will look like for Datto. We have experience using some of their cloud products and they provide a good service. My take is that most MSPs are numb to these types of changes as they occur quite regularly. We roll with the punches and pivot when needed”, said Cannata.
What Does This Potential Sale Mean for the MSP Industry?
The IT industry has grown exponentially over the last two decades. No doubt, its growth is mainly due to the rise of the internet and the emerging need to keep up with technological advancements. In order to stay ahead of the competition, companies need to be innovative and creative in their approach. So, what will the potential sale of Datto mean for the IT industry? Will this lead to growth in competition? Will it become harder to stand out in the crowd?
“With the news release that Datto may be selling makes us worry, as we have a lot of their products rolled out to our customers. We as partners would really need to better understand the purpose and intent of the sale to really have a strong opinion, but, fear is once again warranted and real. We hope as a partner that this sale lands this company in a place to focus on enriching product offerings and product support so that we can see continual growth and feature-rich offerings”, said Tony Larsen, President of N-Tech Consulting.
“I would hope that any potential owner would make sure that all the Datto products would only be able to be purchased through the MSP channel. There is enough competition out there and we don’t need our vendors competing with us as well”, said Anthony Buonaspina, BSEE, BSCS, CPACC CEO, and Founder of LI Tech Advisors.
“We are currently a Datto partner using several different product and service offerings. The quickest way to stoke fear in the hearts of partners is to hear that their company is for sale. This raises a lot of questions and the driving fear is really the fear of the unknown. Odds are that if you’re a current partner, you like the product or service being offered. This can quickly and drastically change with the transition of ownership”, said Nick Martin of Mainstreet IT Solutions.
“Datto has probably been the most critically strategic partner of ours over the years. I say this from the standpoint of ransomware recoveries, failed local servers, spinning up client servers in their cloud infrastructure – they, along with us, really are the BDR cavalry when it counts the most. I hope that they can continue to maintain what they’ve brought to the table for their MSP partners over the years, as sometimes private equity growth, other technology acquisitions, etc., can dilute all that”, said Joe Martin, Strategic Account Manager at Compunet Infotech.
What Is Driving the Change in the MSP Industry?
With a majority of IT companies now offering consolidated and commoditized solutions, there is a high degree of competition among them. Some industry leaders see this as a threat to their industry, while some see it as an opportunity to grow.
“The Datto sale is another sign of consolidation and commoditization of the IT industry. The trend over the last several years has been the consolidation of the vendor channels as well as consolidation of the MSP space. As MSPs grow and position themselves for an eventual exit, there is more value in their company if their company operates according to industry best practices with industry-known toolsets”, said Rob Bruce, CEO of All Mountain Technologies.
“There is not much differentiation in capability and toolsets and standards are well-publicized and, frankly, even the service offerings (like security suites) are becoming fairly commoditized. The value of Datto is in its MSP partner base and the goal would be to expand it. As everything becomes commoditized, the implications for the MSP channel are the same as they are for many other more mature industries. The implications for the channel seem to me to be that unless you have a differentiated plan that scales in some specific area like business vertical specialization or geographic space, then there are significant barriers to entry for MSPs today that did not exist years ago”, Bruce continued.
Innovation comes from competition. The more competitive the market, the more innovation we see. The most competitive markets are those with a lot of players and a lot of money to spend on research and development. These markets are also the ones that have the most innovation. With more competitors in the market, companies have to work harder to stay competitive.
“As a consumer of some of the products they offer, I prefer to have more competition and less consolidation. Innovation comes from competition and I noticed that when there’s less competition, it translates to less in ovation and less product development”, said Ilan Sredni, CEO and President of Palindrome Consulting, Inc. “Ultimately, how this shakes out will almost certainly be based on the overall deals that are brought to the table and probably not the perception of the MSP community, whether good or bad”, said Kushner.
