Wall Street skeptical of SolarWinds’ hot air

Contact: Scott Denne Ben Kolada

A few rocky quarters aren’t going to get in the way of SolarWinds’ dealmaking as the network monitoring company pays $103m in cash for Confio in its second-largest deal to date. The timing is particularly noteworthy, given that SolarWinds issued revenue guidance below analysts’ expectations in each of the last two quarters and experienced blowback following its last acquisition.

SolarWinds’ stock is down 41% since the first of those two guidance announcements. Yesterday’s deal announcement sent it down another 3% as of midday. That’s better than the reaction it got from its last deal – the $120m purchase of N-able in May that chopped 12%, some $400m, from the company’s market value. (To be fair, the reception for N-able was due in part to the target operating a different business model in a different market than SolarWinds.)

However, analysts were comforted somewhat yesterday, as SolarWinds’ management hinted at a return to smaller tuck-ins rather than big ticket M&A. Excluding Confio and N-Able, SolarWinds’ median M&A deal size is $21.5m.

SolarWinds is valuing Confio at 6.9x last year’s booked revenue (we’ll have a longer report on the rationale for this deal in our next Daily 451). However, the valuation for its actual trailing revenue is a smidgen higher. (Click here to see our estimate of Confio’s trailing sales.) ArchPoint Partners advised SolarWinds on its sale.

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