In a move that will shake up the managed service provider (MSP) space, SailPoint Technologies Holdings, Inc., a digital identity management firm has announced that it will be acquired by the software investment company, Thoma Bravo in a deal worth $6.9 billion. SailPoint will become a privately held company once the deal is completed, which is expected to happen in the second half of 2022. SailPoint will continue providing international services in the digital identity management space.

Why Is Sailpoint Selling and Why Is Thoma Bravo Buying?

The move by SailPoint is likely driven by a number of factors, not the least of which is the current market conditions. Seth Boro, a managing partner at Thoma Bravo, said in a statement, “SailPoint is ideally positioned to capitalize on the large and growing demand from modern enterprises for robust identity security solutions that secure their business and reduce risk.” 

SailPoint has become the standard for identity and access management, with a product suite that is both comprehensive and easy to use. This move comes as MSPs are looking for ways to diversify their portfolios and offer more comprehensive services to their clients. This transaction represents the culmination of a strategic review process that both sides believe is in the best interests of SailPoint, its employees, customers, and shareholders. 

With the COVID-19 pandemic raging across the globe, many companies have been forced to re-evaluate their business models and strategies. The SailPoint deal is also a bet by Thoma Bravo that the market for identity and access management (IAM) will continue to grow in the years to come. Thoma Bravo has a history of successful software investments, and the firm is no doubt betting that SailPoint will be another home run. Only time will tell if the bet pays off, but for now, it appears that both SailPoint and Thoma Bravo are happy with the deal.

Will Thoma Bravo’s Latest Acquisition Create a Monopoly?

Since the announcement of the latest acquisition by Thoma Bravo, there have been questions about whether this could create a monopoly. “Thoma Bravo is currently valued at $103 billion and from the looks of it, they intend on cornering the market for firms that supply MSP services. This is a concern for the smaller MSPs that utilize the services of the companies they have acquired or will acquire. Having all your eggs in one basket is not a good business model. Thoma Bravo is poised to create a monopoly where the MSPs will be at a disadvantage of having very few independent choices to choose from. Thoma Bravo has acquired over 375 companies over the last 20 years – that’s over 18 companies a year,” said Anthony Buonaspina, BSEE, BSCS, CPACC, CEO and Founder of LI Tech Advisors.

“It doesn’t create a monopoly as there are still several entrants and disruptors out there. This is typical of private equity-focused in a particular segment. Some more than others. For the most part, they have been as engaged in the driving pricing or day-to-day operational changes so we are not worried as of yet,” said Ashu Singhal, President of Orion Network Solutions.

“The word monopoly is rarely used or enforced in this space unless a larger company has something to lose. Acquisitions happen and the customer is steered in one direction or another.  The account managers have been slimmed to none and the price point is not beneficial as there are few competitors left.  As MSPs, we are targeted daily with solicitations from vendors just because we use one product they own, and they are trying to cross-sell. The question I have are VCs purchasing assets to sell off eventually or are they planning on growing them?  This volatility does not sit well, and the MSP will have to adapt,” said Robert Giannini,  Chief Security Officer and CEO of GiaSpace. 

Thoma Bravo has been very strategic in its investments, and while many do not believe this move will create a monopoly, it will solidify Thoma Bravo as a key player in the MSP space. “Although they are nowhere close to a monopoly, they have made great strides at being a one-stop-shop for some MSPs. The potential risk that they can run into is that as they purchase competing products and consolidate them, they could be creating a small monopoly,” said Ilan Sredni, President of Palindrome Consulting, Inc.

What Impact Has Thoma Bravo Had on the MSP Space?

In 2017, Thoma Bravo acquired Continuum, an MSP-focused software company that provides remote monitoring and management (RMM), business continuity, and managed IT services automation tools. The Continuum acquisition was a bet by Thoma Bravo that the MSP space was ripe for consolidation and that there was an opportunity to build a large, diversified company in the space.

“Prior to Thoma Bravo acquiring ConnectWise, we saw several technology companies being absorbed. For us, it started with Thoma Bravo and the Zenith acquisition, later becoming Continuum. My personal experience was when these assets that were struggling with customer service prior are in no better position, if not worse, today. There was a time when IT Nation started showcasing their own assets, leaving other vendors that were present and supported us, in the dark. When a company buys these technology stacks, they tend to integrate one of them,  even though there is an overlap. That leads to more confusion as if we have a security stack with Continuum and ConnectWise that competes with one another. Are we investing time and money into a solution that has no future?” said Giannini. 

Thoma Bravo’s impact on the MSP vendor business has been evident in recent years, as a number of MSP software vendors have been acquired by private equity firms. “Thoma Bravo has definitely made an impact in the MSP vendor business. We use some of the products in which they have already invested, but their impact is different for each one of them. I have to be honest that the impact we have noticed has been significantly less than those vendors that we work with which were required by Kaseya. The SailPoint purchase is another feather in their cap and it will not have any impact on us moving forward in dealing with them,” said Sredni.

How Does the Merger & Acquisition Space Impact MSPs?

The M&A space can have a big impact on MSPs, as it can create new market leaders and shake up the competitive landscape. The M&A space can also have a negative impact on customer service and reliability, as companies are often more focused on integrating their systems and operations than on providing the best possible service to their customers. The SailPoint acquisition by Thoma Bravo is sure to have an impact on the MSP space, as it will create a new market leader in digital identity management.

Companies that are acquired by private equity firms often go through a process that involves them being forced to make changes to their business models in order to meet the demands of their new owners. “There is a great book by Jim Collins called “How the Mighty Fall.” It boils down to “hubris.” The big guy thinks he’s great because he’s so big,” said Dimitri Miaoulis, VP of Baroan Technologies.

Said Buonaspina, “Although their intentions are to work closely with the company’s existing management to add additional operational resources; design and execute a plan that substantially reduced the company’s cost structure without negatively impacting top-line performance, this doesn’t seem to work well for the MSP that is utilizing their products. We have seen more overall issues with the products and diminished service and support. So, as an MSP, we don’t see news like Thoma Bravo purchasing SailPoint as a good thing for our own bottom line.”

“For the companies that LI Tech Advisors works with directly that they have acquired, we have seen a decline in the service and reliability of the products we utilize. I believe part of this is due to Thoma Bravo’s influence in working with the companies that they have acquired to reduce overall operating costs in order to maximize their profits,” Buonaspina said.

Miaoulis said, “In the process, the big guys inevitably start looking inward and about “their” company, not their customers/market. That’s when the slide begins and the mighty fall. I look at all this as a benefit (depending on how the big guys decide to wield their size). I think that right now, being in the MSP space is at the right time, the right place. Doesn’t matter if you are a bagel shop or a huge company in the M&A space. The moment you put yourself first, before the client, that’s when the slide begins.”