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Private Equity Circles Solution Providers looking for distress
From Monday, April 6th's episode: Jim Lippie, General Manager and Senior Vice President for Partner Development at Kaseya was recently interviewed by Rich Freeman as a follow up to an appearance on Rich’s weekly podcast where Jim made the prediction that regional and national MSP, with active assistance from private equity investors, were positioned to begin leveraging their deep pockets and economies of scale to crowd smaller firms out of the market.
In that follow up interview last week , Lippie was quoted saying ““The dynamic is going to shift from the three, four, five years that we were talking about to one to three years,“
He additionally said ““I’ve talked to several private equity firms that are involved in MSP rollups at this point, and they see this as a huge opportunity,” he says. “They see this as a big buying opportunity to get some high-quality businesses at a lower valuation than we saw even two, three, four months ago.”
Why do we care?
Jim said something that is worth noting and interpreting. He has spoken with several private equity firms who are planning to scoop up service providers who are struggling at much lower valuations.
Hear that again. As this time of struggle goes on, private equity is circling like vultures to buy businesses when they are down in value and the business owner will sell for that lower valuation – likely because of those same struggles and concerned the business will go under. You wouldn’t sell if you think you can pull out… buy low sell high, right?
Private equity isn’t in this space because they’re helping, they’re in this space looking for deals to make money. They are not in it to help you. Remember that.
This isn’t good for Kaseya either, mind you. Think about it – those larger national and regional MSPs are likely buying licenses in larger quantities and thus getting a higher volume discount, which cuts into Kaseya’s revenue and margin. It’s why their announcement of moving their own money to help providers is leadership – it’s sacrificing their own short-term profit (and the appearance to investors) for long term health of their customers.
I hope you told those vultures to buzz off, Jim. They’re not helping anyone but themselves.
First, 57% of partners believe they will meet or beat their original 2020 revenue plan. The study also finds that the average solution provider has less than three-months cash reserve to cover operating expenses and cash flow gaps. One third of solution providers have less than two months of cash on hand/
Also in the data – the most desired assistance from vendors is extended payment terms, followed by extended lines of credit.
Why do we care?
Look, I appreciate the “hope for the best” optimism. Asking if my revenue will go up is my outlook. I, too, totally believe think things are going to be better.
I also am planning they won’t. Those aren’t two incompatible statements – I’m optimistic things will go closer to plan, but I’m building contingencies that they don’t.
My counsel is to not read too much into this – optimism does not pay the mortgage… but it is a great motivator. Be optimistic. Just also be pragmatic.
Amazon Web Services moves
From Wednesday, April 8th's episode: Amazon Web Services has launched its Migration Acceleration Program for Windows, which is a service designed to help customers execute large-scale migrations of Windows workloads to AWS. The service includes prescriptive guidance, consultation with AWS experts and tools training and service credits.
It is a three step process. A readiness assessment, a mobilization phase to fix problems found, and then the actual migration, which is done with Amazon’s ProServe team and Amazon Partner Network companies.
AWS also announced they are not penalizing partners for missing their 2020 sales and compliance obligations due to the pandemic.
Why do we care?
Did you know Amazon has a Managed Services Program? They do. It’s filled with companies like Deliotte, Logicworks, 2nd Watch, and Accenture. There are eight partners listed on the Amazon website.
Amazon’s definition of Managed Services and the one generally used within what is referred to as the IT channel are two entirely different things. That’s important to know first.
This is useful to know it exists for large opportunities that are looking to move to the cloud, and specifically AWS.