On Monday, April 11, 2022, Datto, a cloud-based software maker, announced that it would be acquired by Kaseya, a provider of remote monitoring and management solutions, for $6.2 billion. An equity consortium led by Insight Partners will fund the all-cash transaction, with TPG Capital and Temasek investing significantly, as well as notable investors including Sixth Street. The deal is expected to close in the second half of 2022.
Inside the Kaseya-Datto Merger
This acquisition by Kaseya will create a giant provider of IT management, data protection, business automation, cybersecurity, and MSP software. “Datto and Kaseya have several overlapping products including PSA and RMM tools. It will be interesting to see how Kaseya’s influence over the existing toolset will affect Datto’s products. When Datto bought Autotask many years ago, there was a big uptick in improvement on the product with sustained success,” said Nick Martin, Director of Managed Services of Mainstreet IT Solutions.
“An evaluation of $8 billion is certainly going to close the doors for others to buy the conglomerate. Kaseya has been buying up large operational players in the IT space for several years now. Unfortunately, when companies get this big and have a valuation larger than 99% of investment firms can control, there are only two obvious outcomes,” said Aaron Kane, Chief Executive Officer of CTI Technology.
One, eliminate low margin business units, and two, re-divide into smaller profitable units. Sadly, both options are going to come with a price of degrading service and animosity with outgoing staff. With large controlling giants such as Kaseya or Thoma Bravo minimizing competition, IT providers across the globe are going to feel the pressure to align with one major player. Competitively, this is a disadvantage as much smaller and more nimble competition will have a higher market entry which will prohibit the affordable innovation. As a leader of an IT service company, we depend on partners who are innovating and moving with the changing market.
What This Means for the Future of the IT Industry
The Datto-Kaseya merger is a sign that the IT industry is consolidating. In recent years, we’ve seen a number of large acquisitions in the IT space, including Cisco’s acquisition of AppDynamics and IBM’s acquisition of Red Hat. As the IT industry consolidates, we can expect to see more large acquisitions like this one. This consolidation is driven by the need for economies of scale and the desire to offer a comprehensive suite of products and services to customers.
This merger can be looked at in a few different lights. In the industry, there has been a recent pattern of companies consolidating in order to have a more comprehensive suite of products. “There is a lot of overlapping tech between both companies, so overall I can see a benefit for the merger. Especially with their Remote Monitoring and Management (RMM) tools and they will have increased leverage on our tools such as Webroot,” said Anthony Buonaspina, Chief Executive Officer of LI Tech Advisors.
“This is another great move by Kaseya. They are constantly adding to their solution stack of excellent services. Under the leadership of Fred Voccola, Kaseya is making excellent progress towards establishing itself as the de facto leader in the software and services they offer for MSPs and corporations. Fred’s a winner and so is Kaseya. Their VSA product is the absolute most powerful solution in the market when properly configured. They have done some great things with the most recent acquisitions, so this should be no different and will be a big win overall for their existing clients and both the Kaseya and Datto ecosystems,” said Guy Baroan, President of Baroan Technologies.
“We are a mix of excited and concerned by this. We’re one of Datto’s top 1,000 partners and spend over$100,000 with them each year. They are a huge part of our business and we’re concerned about any changes that Kaseya might make since they already have offerings that overlap everything we get from Datto. Kaseya has done a good job in the past of keeping their acquisitions pretty much stand-alone, so we hope they continue to adopt this strategy with Datto. On the plus side, I was able to participate in Datto’s IPO so the deal will put some extra money in my pocket, but overall I wish Datto would have remained independent,” said Paul Bush, Principal Consultant of OneSource Technology, Inc.
Said Buonaspina, “This is more of a benefit for MSPs that have been using Kaseya with more integrations that utilize the Datto infrastructure. For MSPs that have been utilizing Datto, I believe we will be seeing just more of the same and won’t see many improvements or benefits. The only benefit I see personally is that Datto’s stock just went up 5 points.”
Speculating the Road Ahead
Can combining these two companies create a better experience for clients? Ernie Sherman, President of Fuelled Networks Limited does not believe the Datto-Kaseya merger will lead to better services for clients. “It’s the same as ConnectWise. The year or two that they work out all of the kinks, we all pay for it, and then they raise the rates. SO big they will never be able to support their clients,” said Sherman.
Conglomeration is increasing at an alarming rate, and the Datto-Kaseya merger is just the latest example. Since the news broke on Monday morning, there have been differing opinions on what this means for the future of the IT industry. Some believe that this is a positive move that will help the industry to grow and reach new heights, while others believe that this consolidation will lead to less innovation, poor customer service, and fewer choices for customers.
Poor customer service post-acquisition is a real concern. We’ve seen this happen before with other large acquisitions, such as IT Glue. In this case, the quality of customer service deteriorated after the acquisition. “This is disappointing on many levels. The increasing levels of conglomeration in a field that is strongly dominated by (primarily) small business IT firms are concerning, especially if you consider Kaseya’s poor track record when it comes to product acquisition,” said Reid McConkey, Founder and CEO of Resolved IT.
As a customer, I despise this. Rapid Fire Tools or IT Glue are great examples: once AMAZING products with amazing support teams, completely run into the ground post-acquisition. IT Glue has been chronically offline, the sales process is now insufferably pushy, and the executive team is even further disconnected from reality with an additional (massive, publicly-traded) acquisition. Another example of shady business dealings is the language used (illegal, in the state they’re headquartered in, Florida) in the autorenewal clauses in their contracts. The MSP community needs to work together to force Kaseya to change, and/or just stop using their services altogether. I won’t even mention the VSA ransomware incident less than 6 months ago that they’ve swept under the rug,” said McConkey.
What word would Matthew McCann, Chief Operations Officer of ExcalTech use to describe the Kaseya-Datto merger? “Disaster… That is the only word. IT Glue has been down for almost a week with up and down outages and that is where we all keep our credentials. Kaseya is just a pump and dump company,” said McCann.
Not only does Kaseys have a poor track record when it comes to product acquisition, but Kaseya has been known for predatory pricing. What will they do now that they have bought Datto? “Recently several Kaseya products have been having excessive outages. Kaseya has this predatory practice of adding 3-year renewal terms into their 1-year agreements. The auto-renewal clause has caused us to not renew several Kaseya products,” said Cameron Call, Chief Technology Officer of Network Security Associates, Inc.
“Kaseya is ruthless in how they negotiate contracts, often pushing 3-year deals that lock their clients in without any leverage to leave the product. For a company that had a large hack in the past year, this has really not sat well with the MSP community. One thing to keep in mind is that Kaseya is not new to the M&A conversation. When they bought out IT Glue there was special provisioning that allowed their customers to be “grandfathered” into their existing contracts. With the merger not expected to happen into the second half of 2022, there will be quite a few MSPs paying attention to every detail coming out of this acquisition”, said Martin.