6 Things You Need To Know About Zix’s Planned Purchase Of AppRiver

In a big shakeup for secure email, Zix is creating an SMB behemoth that is poised to see $180 million in annual revenue and massive opportunities for partners, Zix CEO David Wagner tells CRN.

Zix To Buy AppRiver

Zix, a Dallas-based provider of secure email and backup services, said it is buying AppRiver for $275 million and in doing so is expanding the number of its partners from 400 to 4,000 in a big push into the channel.

The deal, which is expected to close by March 31, creates an encrypted email juggernaut for the SMB space that is expected to see annual revenue of $180 million.

To finance the deal to buy AppRiver, Zix received a $100 million investment from True Wind Capital, as well as a $175 million five-year loan—with $25 million in revolving credit—from SunTrust Bank and KeyBanc Capital Markets. Two True Wind partners will also sit on the Zix board once the deal closes: Jamie H. Greene Jr., founding partner, and Brandon Van Buren, a principal.

CRN talked to Zix CEO David Wagner about the deal and why the channel is crucial to success. Here are six things you need to know about the acquisition.

AppRiver Is A Big Player In Secure Email

Founded in 2002, with 4,000 channel partners and more than 270 employees, the Gulf Breeze, Fla.- based company does business with 60,000 customers around the world.

AppRiver completed two acquisitions in 2018. In October the company bought Total Defense, a cloud-based security and productivity services provider. In March AppRiver bought Roaring Penguin, which gave it technology enhancements around spam and virus filtering as well as entry into Canadian markets to sell Office 365.

Details of the transition as far as who in AppRiver leadership will be retained are still being worked out, a Zix spokesperson said.

Zix Is Smaller Than AppRiver But Has Big Ambitions

Zix is a maker of email archiving and security products, including ZixMail secure email, which automates key management to provide end-to-end email encryption that protects messages and attachments. The publicly traded company has a market cap of $332 million.

The company acquired Seattle-based Erado in April 2018, which works in the financial industry and specializes in email archiving, compliance, supervision and analytics.

During its most recent reported quarter, Zix revenue was up 7 percent year over year to $17.9 million. During that earnings call, Wagner said Zix did 58 percent of its business direct with 41 percent through the channel and 1 percent coming from web sales.

Why Buy AppRiver?

Wagner said the market conditions are driving Zix to make a big channel push, which made AppRiver and its robust channel program attractive.

“AppRiver is a channel-first provider of email security solutions, security solutions,” Wagner told CRN. “Zix has been working over time to more and more have the channel as part of our strategy. … When you look at AppRiver, they deliver great value to the channel.

“First, from my perspective, what the channel partners come back with, what the end users come back with, is phenomenal customer support. The best of anybody they’ve worked with. The feedback from our interviews with partners and their customers is really exceptional. We surveyed hundreds of their end customers and dozens and dozens of the reseller partners and just got that feedback, really consistently,” Wagner said.

“I think that’s something in the SMB business segment that is underserviced. Microsoft can do a really nice job for the larger enterprise clients; it gets harder for them as you go downmarket to the sub-1,000 segment. So the resellers were talking to the MSPs that are servicing those mid- and smaller-sized companies that really value that.”

AppRiver Has Created Great Products Inside A Great Cyber Ecosystem

“The second part of what makes their channel delivery so phenomenal is the platform that they’ve built to help their partners service their end users in the best way possible,” Wagner said. “Everybody is working in the same cloud-based database, so that everybody gets the view of the data that they need to do their jobs as well as possible. That brings it right back down to the people that make the difference. It’s the people on the phone in Gulf Breeze,” he said.

“It’s the reseller partners that have the great relationship with the end users. It’s the end-user administrator who is trying to give great service to their employees at their place of business. This platform allows this customer service focus to be delivered all the way from Zix-AppRiver to distribution, to the MSP, to their IT administrator, right on down to the end user. That’s what I think the future of cloud resell looks like. It looks like providing exceptional value, ultimately to end users. They want protection that is easy to use, that is highly effective with great customer support. And that’s what bringing together Zix and AppRiver is delivering to the market,” Wagner said.

Big Advantages For MSPs And Resellers

“Partners and VARs want to make a good return,” Wagner said. “The first thing that I would talk to them about is the value of a 100 percent recurring revenue stream. So when they bring customers on to the AppRiver platform, it’s always going to be in a subscription model. Ninety percent of the time it’s going to be month-to-month billing, which is a really big advantage that a lot of our work tells us the channel really wants. They don’t want to take the risk of paying for all these Microsoft licenses up front and then having their end customers go out of business. So that month-to-month billing, the fact that their margins continue on a month-to-month basis across the life of the account, is basically where I’d start,” he said.

“Then we help them with monthly billing that takes the risk away. Finally, with the quality of service delivery we lower their cost of business because they’re not bogged down with trouble tickets and hard- to-install, hard-to-use software. Its frictionless to the channel partner.”

Market Forces Are Driving Zix To Make Big Bet On The Channel

“It really starts with what’s happening in the market,” Wagner said. “This migration to cloud, generally, and for security more specifically, customers, particularly end customers, want to be serviced with someone they know, in their community, that’s delivering value to their business. Therefore, we want to enable that business to do their job as well as possible. This is all about adapting our business model to the new cloud business model and helping our MSP partners adapt their businesses to the cloud business model, while retaining the value that they deliver, which is right at the customer.”