MSP software provider N-able completed its long-planned spin-out from SolarWinds today. The spin-out positions N-able ($NABL) to double down on its MSP market focus, while SolarWinds ($SWI) continues to bet its business on IT management software for IT professionals.
In an interview with ChannelE2E, N-able CEO John Pagliuca emphasized a "Forward Together" strategy that extends across N-able's 1,300 employees as well as the company's MSP partner ecosystem. Moreover, he thanked the employees and partners who propelled N-able to its current market position, and tipped his hat to team members who made the spin-out possible.
Still, Pagliuca emphasized that the spin-out is a business milestone rather than an end or an exit. "For N-able, there's more tomorrows than yesterdays," Pagliuca said.
MSP Software Market Bellwethers: N-able, Datto and More
As a publicly held company, N-able essentially becomes another bellwether for the MSP software market -- joining Datto as the only two pure-play MSP software/technology companies that are publicly held. Additional rivals such as Barracuda Networks, ConnectWise, Kaseya, and NinjaRMM are generally privately owned. Also, some rivals have mixed revenue models that also sell to corporate IT departments.
Anecdotal N-able evidence suggests that the company and the MSP software market remain healthy. Indeed, N-able expects revenue of $84.8 million to $85.0 million for the company’s Q2 of 2021, up 16 percent from Q2 of 2020, the MSP software provider disclosed on July 12.
N-able's finalized Q2 quarterly results are expected to be announced in August 2021. Datto's Q2 2021 results should emerge around the same time, ChannelE2E believes.
Generally speaking, both companies have been growing faster than the overall managed services market.
N-able Invests for Growth
As part of the spin-out, N-able raised $225 million in new financing, the company disclosed on July 12, 2021. At first glance, that money involves paying a distribution to SolarWinds shareholders and paying down some debt. But take a closer look, and the new financing positions N-able for long-term growth investments that serve MSP partners, Pagliuca asserts.
On the financial front, the number one priority was to build a diverse base of shareholders that are focused on N-able's long-term growth, Pagliuca asserts. New long-term investors along with existing investors (such as private equity firm Thoma Bravo) understand how N-able plans to emphasize R&D (research and development) and global expansion with MSPs, he says.
(Side note: ChannelE2E does not know N-able's R&D budget, but we'll take a look at the figures when the company announces quarterly results in August 2021.)
Ahead of the spin-out, Pagliuca and CFO Tim O'Brien met with various financial firms to explain the business strategy and raise funds. Those conversations would have been tricky five or 10 years ago -- when investors weren't all that familiar with the MSP sector and associated SMB technology consumption models. But fast forward to present day, and financiers along with venture capitalists are far savvier about the MSP market.
Indeed, savvy investors now know that "MSPs control the IT keys to the SMB market," Pagliuca says. He also credited Datto CEO Tim Weller and CFO John Abbot for their work explaining the MSP market to investors ahead of Datto's IPO in 2020.
Moreover, Pagliuca says the MSP market has matured beyond mom-and-pop SMB management. The services MSPs now provide have gotten "more critical and more expansive" while extending up to midsize and large, international, publicly traded companies, he says.
At the same time, MSPs have moved into public cloud managed services across Amazon Web Services (AWS), Microsoft Azure and 365, and Google Cloud Platform. Within the N-able ecosystem, public cloud MSPs are focused "disproportionally higher" on Microsoft's cloud platforms, Pagliuca says. Amid that reality, N-able has been integrating with Microsoft Intune, Office 365 and other Microsoft cloud services.
N-able Explores Acquisitions
Meanwhile, N-able continues to evaluate potential acquisitions. Ahead of the spin out, SolarWinds purchased such firms as Passportal (2019) and Trusted Metrics (2018) for the N-able portfolio. Those technologies -- including password management and threat monitoring -- continue forward under N-able's ownership.
More M&A deals could be coming. "When we consider M&A, we start by considering the needs of our MSP partners. Then we ask ourselves: Do we need to build, partner or acquire a specific technology to serve our MSPs?" Pagliuca says.
That discussion pops up regularly in weekly corporate strategy sessions featuring N-able General Counsel Peter Anastos, Director of Corporate Development Marco Muto, and other key leaders who have M&A experience, Pagliuca says.
Looking ahead, potential M&A deals should come together more quickly now that N-able has dedicated resources for acquisitions. Indeed, N-able hired multiple executives to round out its executive team ahead of the spin-out from SolarWinds.
Still, N-able will face still competition on the M&A front. Most of the company's established rivals -- along with emerging rivals -- have been active buyers in such areas as IT automation, artificial intelligence, cybersecurity and business management software.
N-able Cybersecurity Priorities
On the security front, N-able continues to focus on three key priories:
- Increased spending while understanding where and why those dollars are being spent;
- making sure all personnel take cybersecurity seriously; and
- shifting toward a culture of security.
Those three elements, Pagliuca says, are required to ensure continuous cyber improvement at scale.
Pagliuca continues to emphasize that N-able's technology was not breached during the high-profile SolarWinds Orion attack, which was discovered in December 2020. However, he says that the entire software industry was affected by that attack -- meaning that all software companies had to take a step back and closely analyze how their software is developed, secured, distributed and consumed.
Amid that reality and the spin-out, N-able had the opportunity to "build systems anew" while further hardening its software development processes, which the company explained in February 2021. More recently, N-able hired Dave MacKinnon as chief security officer.
N-able Spin-Out: More Than A Year's Work
N-able's leadership team and former SolarWinds CEO Kevin Thompson first brainstormed the N-able spin-out around mid-2020. (Sudhakar Ramakrishna succeeded Thompson as SolarWinds CEO in January 2021.)
During those spin-out discussions, N-able's North Star -- serving MSPs -- always remained consistent, Pagliuca says.
In many ways, the spin out was more than a one-year journey. Instead, "It's a nod to the last couple of decades" and the overall rise to the MSP sector, Pagliuca says.
"There are folks who have been in this business for 15 days, 15 months and 15 years," Pagliuca says. "They're all incredible people."
Many of those longstanding N-able veterans -- folks like EVP Frank Colletti, Group VP Mike Cullen, and Senior Director David Weeks -- continue to march forward with the software company. But the N-able market footprint now extends beyond the company's halls. Indeed, N-able veterans such as Derik Belair, Gavin Garbutt, JP Jauvin, Colin Knox, Marco La Vecchia and Mark Scott are out building and/or advising new MSP-focused businesses.
As for Pagliuca, he officially shifts from president to CEO of N-able amid the spin off. And his focus on MSP enablement remains unchanged.
No doubt, competition in the MSP software sector remains intense. And cyber-related scrutiny of the MSP sector has grown sharper. We'll get a better feel for that competition, N-able's performance and the MSP sector's health when the company announces its latest finalized quarterly results in the next few weeks.
