by Brenon Daly
A serial acquirer, SolarWinds looked outside its well-worn M&A playbook in its latest deal, the $120m purchase of N-able Technologies announced Tuesday afternoon. For starters, it’s the largest of the dozen transactions the IT management software vendor has done, about three times the size of its second-largest deal. And SolarWinds plans to run Ottawa-based N-able fairly autonomously rather than integrate it into the platform, as it has done in previous acquisitions.
SolarWinds will be largely taking a hands-off approach to N-able because the startup serves a much different market – and does so through a much different delivery model. N-able sells its remote monitoring and management software to MSPs, counting roughly 2,600 MSPs as clients. For its part, SolarWinds serves IT departments. Also, about one-third of N-able’s revenue comes from subscriptions, while SolarWinds sells perpetual licenses. The transaction is expected to close by the end of the month.
The dissonance spooked Wall Street, which clipped 14% from SolarWinds’ valuation on trading that was more than twice as heavy as normal. Investors may have felt stiffed by the lack of immediate ‘revenue synergy’ in the combination, which went off at a not unreasonable 5x trailing sales. (Never mind that in most acquisitions, the much-discussed cross-selling opportunities rarely show up on the top line.)
Beyond the immediate concerns, however, the acquisition can be viewed as a bit of a hedge by highly valued SolarWinds, which still trades at about $3.2bn, nearly 10x its projected sales of roughly $335m for this year. N-able allows SolarWinds to gain access to much smaller customers than it could typically reach through a channel (MSPs) that it didn’t serve. SolarWinds sized that opportunity at $2bn just in the US, with a similarly sized opportunity abroad. New growth and new markets is something that SolarWinds needs after an admittedly slow start to 2013 that saw Q1 revenue tick up just 22%, compared with 35% in 2012.
For more real-time information on tech M&A, follow us on Twitter @451TechMnA.