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Acer America
Acer America Corp. is a computer manufacturer of business and consumer PCs, notebooks, ultrabooks, projectors, servers, and storage products.

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333 West San Carlos Street
San Jose, California 95110
United States

WWW: acer.com

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May 24, 2019 |

The View from Private Equity: Why Managed Services is an Attractive Opportunity

Private equity investor Philip Vorobeychik (pictured) explains why investors like him are pouring billions into vendors that serve MSPs, and what that trend means for the managed services market.

We’ve all seen the headlines. Thoma Bravo buys Continuum. Thoma Bravo buys ConnectWise. Vista Equity Partners buys Datto. Insight Partners and TPG invest $500 million in Kaseya. And the targets of those acquisitions then go on to buy what sometimes feels like every smaller vendor within reach.

It’s one of the biggest developments in the still relatively short history of managed services. Vendors who serve MSPs are attracting billions of dollars in private equity capital, and then using large hunks of that money to underwrite a seemingly nonstop wave of mergers and acquisitions. What’s behind it all, where is it headed, and what will it ultimately mean, both to vendors and the MSPs who buy from them?

Who better to ask than a private equity investor? So we asked one.

Philip Vorobeychik is a managing director of Vertica Capital Partners, a young private equity firm headquartered in New York that’s just now beginning to invest its more than $200 million in software companies, including software companies that serve MSPs. Why are he and so many others pouring so much money into the managed services market?

“MSPs are getting asked to do more things, and that creates a good investment environment,” says Vorobeychik.

SMBs, he elaborates, are taking more and more of their technology needs to managed service providers. Those service providers, as a result, need more and more tools. And that, broadly speaking, portends good things ahead for both tool makers and their owners.

Indeed, Vorobeychik is surprised it’s taken investors this long to wake up to the managed services opportunity. “If you look at just the amount of funding in other sectors with the same total addressable market opportunities, it was higher traditionally than where the MSP market was,” he says. “That’s not true anymore.”

A one-time IT provider himself, Vorobeychik has been in and around managed services long enough to appreciate the significance of that change. “I have a little bit of a personal affiliation to it and deep understanding of the need,” he says. He’s been in the private equity world for the last eight years, much of it at Insight Partners, which made its first big investment in Kaseya back in 2013. Vorobeychik served on Kaseya’s board for a time, but no longer has a connection to the company.

Even so, he points to Kaseya as an example of the good private equity can do. Presently valued at $2.25 billion thanks to its latest funding round, Kaseya is in the midst of an acquisition spree that has significantly expanded its software portfolio. “I think that Kaseya now, in the last couple of years, has benefitted tremendously from an investor and a base that wants to see that business grow,” Vorobeychik says.

More generally, he says, the money that investors like Vertica put into managed services vendors helps them accelerate product development, fix bugs faster, and hire more support resources. “That’s a great thing,” Vorobeychik says, and not just for the vendor and its owners. MSPs benefit too.

“You’re getting better products,” he observes. “You’re making more money.”

Still, Vorobeychik is cautious not to generalize about the current or future influence of private equity on the managed services space. “It can be a positive or a negative,” he says. “It really depends on who is investing in the companies, and what their goals are.” Firms that build their strategy around cost-cutting, for example, can in some cases do harm to otherwise healthy businesses.

Vertica, on the other hand, is a growth-oriented investor. “We’re not focused on doing anything but bringing more R&D resources, bringing more customer support people, bringing more value,” Vorobeychik says. “We believe there is a real market opportunity to make these companies bigger.” His role in that process is to help managers make better, more informed decisions while leaving the product development to the product developers.

“We never believe that we know better on that side of things,” Vorobeychik says of Vertica. “We just want to augment them to grow in a way that brings them together with the people who matter, other founders, other entrepreneurs, and really encourage them and give them capital to not only continue to have that discipline and product development but maybe accelerate their product development timelines a little faster, so then we can grow a little faster.”

Vorobeychik, like many other investors and industry observers, sees especially fast growth coming for vendors in two segments of the IT industry, security and cloud computing. Once defined largely by anti-virus software, the former market is diversifying into a range of new categories in response to an equally diverse and continually growing array of threats.

“We’re just starting to touch the surface of security,” Vorobeychik says. “We’re seeing a lot of great products coming out to serve other needs in the security market, from mobile to a lot of the compliance needs.”

The cloud opportunity is still in its infancy as well, he adds, despite the already massive growth of platforms like Amazon Web Services and SaaS applications like Microsoft Office 365. “I still believe that there is a big market opportunity for just managing that, or migrating VMs to a cloud interface,” he says.

With so many of the biggest vendors already in the hands of private equity firms, Vorobeychik believes the next big wave of investment will target smaller, younger companies than Kaseya or ConnectWise, with innovative but narrower takes on specific industry segments. There will be no shortage of funds participating in that wave either.

“The MSP market is an attractive one and it deserves to be served in the right way,” Vorobeychik says. “We’re always looking for good opportunities there.”


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