CRN Security Roundtable: How Has Private Equity Shaped The Channel?

‘It’s giving them capital to do things that they haven’t been able to do in the past, investments they haven’t been able to make in the past,’ says Karl Soderlund, Palo Alto Networks’ SVP of worldwide channel sales.


An infusion of private equity has allowed solution providers to invest in new technology and revamp their business models, according to a panel of the security industry’s top channel chiefs.

“It’s giving them capital to do things that they haven’t been able to do in the past, investments they haven’t been able to make in the past,” said Karl Soderlund, Palo Alto Networks’ senior vice president of worldwide channel sales. “And I also think it’s inspiring them to move quickly and make changes that maybe they had been hesitant to make in the past.

Soderlund’s remarks came at a CRN Roundtable titled “Security: Where To Place Your Bets In 2020,” which also featured channel chiefs from Bitdefender, Check Point Software Technologies, Fortinet, and McAfee. Private equity firms have invested most heavily in solution providers that are able to bring either a great customer base or leading-edge services to the table, according to Soderlund.

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Private equity investment has prompted channel executives to become more focused on how they can maximize their valuation to best provide for employees and themselves, according to Jon Bove, Fortinet’s vice president of channel sales. As a result, Bove said channel partners have streamlined the number of vendors they’re going to market with to maximize their focus in key technology areas.

As the channel has evolved its strategy, Bove said partners have seen their valuations grow exponentially beyond the traditional acquisition price of three-to-four times EBITDA (earnings before interest, taxation, depreciation and amortization).

Many adversaries operate with seemingly unlimited budgets, and investments from private equity have loosened the purse strings for many companies in the cybersecurity industry, said Ken McCray, McAfee’s head of Americas channel sales and operations. McAfee has been able to move faster under the ownership of private equity firm TPG than it could when it was part of the Intel portfolio, McCray said.

“Private equity has given us the opportunity to act very nimbly and be very creative and very innovative,” McCray said. “The challenge is us keeping up with the bad guys, and now we have some momentum behind us that gives us a little bit more freedom than we had before. And I think we’re taking advantage of it.”

Private equity firms have been able to improve business processes and operational awareness by rolling smaller MSPs together into a larger solution provider organization, according to Michael Crean, CEO of Woodbridge, Va.-based Master MSSP Solutions Granted. Smaller MSPs also lack the capital and strategic alliances to work tightly with the leading vendors in whatever technology they’re focused on, Crean said.

In contrast, Crean said larger MSPs have the buying power to drive costs down, making enterprise-level solutions more affordable for smaller customers. As a result, Crean said consolidation of MSPs often results in better technology being able to customers at a similar price.

On the other side of the ledger, Crean said private equity investment is bound to change the corporate culture of small, tightly knit solution providers. Private equity firms expect their money to perform, and Crean said they may dictate to solution providers what technologies they should focus on, how much they should charge, and what the terms of the SLA (service-level agreement) should be.

On a positive note, Private equity firms have moved away from the old model of buying solution providers just to cut costs and flip the firm to a new owner, according to Frank Rauch, Check Point’s head of worldwide channel sales. But nowadays, Rauch said private equity firms buying their way into the channel are committed to making investments and growing the solution provider business.

There’s no way some of the industry’s leading solution providers could have grown to the extent they have without the support of private equity, Rauch said. Having access to the private equity firm’s money is a key piece of the puzzle, but Rauch said it’s also about financial expertise.

Rauch pointed to the role Chief Operating Officer Bryan Cox has played at Andreessen Horowitz managing a group of overlay executives focused on supporting the operations of portfolio companies. The venture capital firm has a bench of chief financial officers, chief marketing officers and other deeply experienced talent focused on providing mentorship that goes well beyond weekly inspections, he said.

Bove said private equity companies can play a role akin to what a board of directors does for a publicly traded organization. These advisory roles can have a particularly big impact in areas where the organization might not have expertise on staff, according to Bove.

Advisorships make a tremendous difference because they provide channel partners with access to experts and specialists in the area of business, Soderlund said.

“When all of us hang it up, most likely we’ll be executive advisors for some level of PE firm,” Soderlund said. “Going out and being channel experts to go through. Because truly that’s what the market’s looking for.”