N-Able CEO John Pagliuca: Kaseya/Datto Merger Proof MSP Model Is Right

‘What the merger shows is that investors, private equity, Wall Street, they recognize the power in the model. So, from that point of view, I think it‘s very good. I think it shows that companies can be at scale, that the MSPs are scaling, that the market is growing. And overall, it supports the thesis that we believe that this is very much a golden era for these MSPs,’ says N-Able President and CEO John Pagliuca.

Kaseya’s Planed Datto Acquisition Remains A Situation In Flux

Kaseya’s planned $6.2-billion acquisition of rival Datto has caused quite a stir in the MSP community. The bid has raised a number of concerns, including the impact of investor money on the MSP channel, coming as it does in the midst of a wave of private equity purchases of MSPs. It is also causing some anxiousness among MSPs who primarily partner with Datto given the different culture they expect from Kaseya as well as Kaseya’s direct sales of some of its technologies. Kaseya, however, has told CRN that Datto MSPs will find a good home with Kaseya.

MSPs are served by several developers of technology platforms aimed at helping their businesses provide managed services to clients, with Kaseya, ConnectWise, Datto, and N-able the most prominent. For that reason, the impact of the Kaseya-Datto deal is one that MSP industry observers are watching carefully.

One of them is John Pagliuca, president and CEO of Burlington, Mass.-based N-Able. Pagliuca, in a wide-ranging conversation with CRN, said whether the acquisition will be good for Datto MSPs or not depends heavily on the priorities of the various stakeholders in the combined Kaseya-Datto organization.

“I know that there‘s a lot of concern in the MSP community because this is a big change and a bunch of unknown,” he said. “And when you have that level of change and unknown, I think folks are worried that they can kind of be left off to the side in a couple of different ways.”

The concern of some MSPs over the direction of the future Kaseya-Datto combination is something the two will have to address, Pagliuca said.

“Historically, Datto did a very good job being MSP-first and being pretty focused on the channel and their MSP community,” he said. “Kaseya had a different strategy. Kaseya is not an MSP-pure shop, and I think that‘s where a lot of the concern is. Will the MSP channel now not be the sole focus of the new Kaseya-Datto entity? I think that’s where a lot of the concerns have been. And, frankly, it‘s not my place really to say if that concern is valid or not. It’s just the reality.”

For a look at what Pagliuca expects from Kaseya’s acquisition of Datto, and for a look at what he sees as N-Able’s differentiation in the market, read on.

Define N-able. How do you describe the company today?

N-able is a company that really has a clear vision and mission to empower MSPs. And we do that by giving them a purpose-built technology and a bunch of business tools and know-how to make our MSPs the most profitable MSPs in the industry. And so, our mission is all about empowering these MSPs so they can be the most profitable in the industry. The vision that we share with our MSPs is really to help with the digital evolution of the small-medium enterprise. I like to use the word ‘evolution’ as opposed to ‘transformation’ because it‘s not like a butterfly. You don’t get transformed from a caterpillar. It‘s an evolution. And our MSPs are charged with the responsibility to help small/medium enterprises evolve in this ever-changing landscape that we’re faced with, and some of the risks and challenges that they‘re faced with. We wake up every day laser-focused on how we can help our MSPs reach whatever success metric that they’re trying to reach. We know MSPs. We have 25,000 MSPs. We know that each journey is somewhat bespoke. And their goals are unique to that. And our job really is to provide them again with that technology and business know-how for them to realize their dreams. And that‘s the cornerstone of everything that we do.

What do you mean by ‘each journey is somewhat bespoke?’

Everyone has their own business plan and strategy. And what success means to one MSP is very different to another MSP. I was talking to an MSP based in Florida last week. He was about $3 million in revenue. And his goal was not necessarily to grow revenues to such a high amount. He was focused on growing profit. And he was also focused on establishing a long career for his employees. Remember, our MSPs are small/medium enterprises. Their goal might be to help fund their college 529 plan for their kids. Their goal might be to transition the business to their children. We have many MSPs that are multi-generational. And so, it‘s very much a unique situation. We have other MSPs that are a billion dollars in revenue. Bigger than N-able. And they have their own set of goals and initiatives. And we’re very much aware that not one goal for MSPs is uniform, and we should not assume they all have the same goals. And that‘s why we’ve invested a good amount in N-able on partner success. We don‘t call our customers ‘customers.’ Our MSPs are our partners because we have this beautiful business model where we grow as they grow. And as they grow their top line, as they grow their profit level, as they get healthier, we grow along with them. And so, we invest in partner success.

When we spun the business out of SolarWinds in July [of 2021], it was really based on the fundamental premise that we need to touch the customer differently. We need to help them along their journey. We need to invest in partner success. And we need to invest in product and in technology to help them with this journey that they‘re on. Small/medium enterprises are facing challenges today that very much look like Fortune 1000 challenges: labor shortages, different types of cloud workloads, different types of security risks. And so small/medium enterprises are looking to MSPs to help them be productive, to help them collaborate, and to help them do so securely. And it’s our job to give MSPs the tools to make sure that the small/medium enterprises can be productive, that they can work from anywhere and anyhow, and can do so in a secure fashion. That‘s become more and more of the MSP responsibility today than ever before.

When you heard that Kaseya planned to acquire Datto, what were your first thoughts?

For me, it‘s just another proof point that the investment community in the world recognizes the power of our MSPs and the gateway that they provide to the small and medium enterprise. MSPs are an effective path to the IT spend as a small/medium enterprise, and effectively the MSP model and the model that we have for remote monitoring effectively kind of breaks the code. So, we can access that small and medium enterprise at scale and profitably. And what the merger shows is that investors, private equity, Wall Street, they recognize the power in the model. So, from that point of view, I think it’s very good. I think it shows that companies can be at scale, that the MSPs are scaling, that the market is growing. And overall, it supports the thesis that we believe that this is very much a golden era for these MSPs.

Is the acquisition of Datto by Kaseya a good thing for MSPs?

I guess we‘ll have to wait and see. I think anytime you have this level of what I refer to as a kind of a calculated disruption, it can go a couple of different ways. There’s obviously a bunch of different stakeholders, right? You have your investors, you have your management teams, you have your employees, you have your customer base. And when you put two companies of that size together, it‘s going to cause some disruption. It’s going to cause some confusion. And the priority of which stakeholder takes priority, that‘s going to be a wait-and-see. I know that there’s a lot of concern in the MSP community because this is a big change and a bunch of unknown. And when you have that level of change and unknown, I think folks are worried that they can kind of be left off to the side in a couple of different ways.

And for us, what I tell my team is, we‘re focused on our mission and vision. And we continue to be focused on servicing those MSPs, empowering them for their success, focused on our knitting, so to speak, on our roadmap. And as long as we are driving the right value, the right products, the right service level, business tools, to our MSPs, they will grow and N-able as a result will also grow and be rewarded.

I think we‘ll wait and see as to how they’ll rationalize their portfolio, how they‘ll rationalize their leadership teams, how they’ll rationalize their workforce. I have no insight into what their plans would be. I think they’ve made some comments that they‘ll continue to maintain both brands and both products. And we’ll have to wait and see. I think there‘s some concern out in the industry. And I think the concerns are warranted with this level of change, but we’re going to be focusing on doing what‘s right for the MSPs. And the good news for N-able is, we will not be distracted by this type of merger. We’ll be focusing on our roadmaps, on our customers, on our growth thesis, and pushing our agenda forward without distraction.

Does N-able plan to reach out to Datto MSPs to try to recruit them in the wake of the acquisition?

No, we‘re not doing anything specifically targeting the Kaseya or Datto customer base. We believe we have an offering that is superior in a bunch of ways and, quite frankly, more cost effective in a bunch of ways. And we stick by that value prop. And that’s what we‘ll continue to do. So, we’re not doing anything different than we did before the announcement. We‘ll stick to our strategy of showing the MSP community we believe we’re the best long-term partner to fuel their success. And that’s what we‘ll continue to do. And we believe by sticking to that simple kind of value prop and that level of focus, the MSP community will have to decide who is the best future partner for them. And we hope that they choose N-able based on some of the points that I was giving you before. So, no.

We've seen a lot of Datto MSPs concerned about the future given fears about possible changes in Datto’s corporate culture. Are Datto MSPs right to be worried about the acquisition?

Historically, Datto did a very good job being MSP-first and being pretty focused on the channel and their MSP community. Kaseya had a different strategy. Kaseya is not an MSP-pure shop, and I think that‘s where a lot of the concern is. Will the MSP channel now not be the sole focus of the new Kaseya-Datto entity. I think that’s where a lot of the concerns have been. And, frankly, it‘s not my place really to say if that concern is valid or not. It’s just the reality. Those are just facts that I just mentioned that they have a change, and I think Kaseya has a history of selling both the IT pro and the midmarket and the MSP. And I think some of our MSP communities might have some concern around maybe that lack of singular focus.

So how does N-able differ from competitors like Kaseya, Datto, or ConnectWise?

There are three or four major competitors that are well known. And with the recent news of Kaseya and Datto getting together, it looks like the four may go down to three. I‘d say that everyone has [their own] their origins and roots, and from those origins and roots you can kind of tease out the DNA or the core competency of each of the companies. ConnectWise was born as a PSA, and so they have a lot of their heritage and roots in PSA. Datto, as a comparison, was really born in backup, and they have that appliance they use to do backups. And that’s the majority of their business and their revenue. Kaseya is really kind of a combination of a bunch of different brands. So, everybody has their roots. N-able was born in remote monitoring and management. And so, we believe that gives us a unique advantage because that is where it‘s the messiest for MSPs.

You said ‘messiest?’

It’s messiest in a couple of different areas. MSPs need to be able to monitor and manage everything. So, we give MSPs access to the broadest view of the ecosystem. We’re the only shop on the planet that has a Microsoft Intune [mobile device management] integration that also gives MSPs deep management and monitoring capabilities with Apple devices, Linux devices, IoT devices. It doesn‘t matter if your workloads are in your server or in the cloud. So, our breadth and depth, we have enabled MSPs to monitor and manage the broadest range of devices, operating systems, workloads.

[Furthermore], our strategy as it relates to providing MSPs with enterprise-grade security is unique. We build a lot of our own security offerings. We have our own password management tools and our patching engine. We have our own data protection offering as well. These are fundamental key parts of the NIST [National Institute of Standards and Technology] framework, and key elements of cyber hygiene for any MSP in small or medium enterprises. And then we also partner with companies like SentinelOne, integrate that into our RMM, that remote monitoring platform that I mentioned earlier, to give MSPs enterprise-grade security. But that way they can scale and administer enterprise-grade security in a highly efficient way.

The name of the game for MSPs is to make sure their customers are secure, but also to drive efficiency and scale in their business. And the way we do that is by leveraging our RMM. We have a very strong automation suite. So MSPs can effectively do more with fewer technicians. We drive our MSPs to become more efficient and help that ratio between technician and customer. So, we stand apart on the concept of being able to give MSPs the ability to manage everything, and in our deep security offerings that we do. And that‘s why you’ll see us later this year giving MSPs more tools around the cloud, whether it be cloud monitoring and Azure instances, or whether it be better tools to help them manage their Office 365 instances. We are the thought leader as it relates to helping MSPs with managing the push to the cloud and giving them the tools to monitor, manage, and secure assets no matter where they are.

But your competitors say the same thing. They're also bringing in more security, bringing more tools to help MSPs, more cloud enablement.

I don‘t hear anyone talking about the cloud other than us. Competitors are offering security offerings, but the devil’s in the details. So, with ConnectWise as an example, they push their marketplace. They give MSPs the option to buy, but they’re not necessarily as focused on the integration. Datto, by comparison, does not have the same type of breadth and depth of security offerings that we have. And so, I would say that I don‘t think that’s true. Kaseya has a bunch of separate security tools for MSPs. But I believe our combination of integration and this ability to help them manage assets, no matter where they are, separates us for sure.

How is N-able’s business?

We‘re publicly traded, so you can look at the latest financial results. ... We continue to aspire to be that ‘rule of 50’* company where aspirationally we’re growing in the mid- to high teens. And that‘s our mid-term kind of aspiration. And, also, balance that with the right level of profit. Historically, we’ve been in the low 30-percent on an EBITDA basis. And I like that combination of focusing on growth and profits. I think it‘s the right message to our MSPs, to our employees, to our stakeholders. And that’s what we‘ll continue to do. We brought down our profit level as part of the spin-out [from SolarWinds] because we wanted to invest more. We believe it’s early innings in this industry. We believe we‘re entering the golden era in this industry. And for us, we want to be able to lean into that opportunity, put more products to market, and grow our top line, but do so responsibly and continue to grow our bottom line as well.

So, I‘d say we’re pleased with the progress we‘ve made since July. We’re pleased with the addition of our ‘N-ablite’ workforce. We continue to grow and add a healthy level of N-able employees. And we continue to add a healthy level of new products to the market as well. In February, we brought a DNS filtering offering to the market, which is another security offering that enables MSPs to secure their end customers in another way. So overall, I‘m quite pleased with the progress we’ve made from our operational plan and that original thesis when we spun out the business.

* “Rule of 50” company: One measure of a company’s financial success where the annual revenue growth plus EBITDA is equal to or greater than 50.