Is Datto About To Be Sold? 5 Big Things To Know

Such an acquisition, coming only a couple years after Datto became a publicly-listed company and on the heels of a series of ransomware attacks that used MSP-focused platforms similar to what Datto offers, could bring increased scrutiny--good and bad--on the managed service provider business model.

Datto: A Complex Machine With Lots Of Moving Parts

MSP platform provider Datto is considering a possible sale of the company after it received interest from private equity firms, according to a late-Wednesday report by Bloomberg.

Norwalk, Conn.-based Datto is working with a financial adviser to solicit interest from potential equity firms, according to Bloomberg.

Until recently, few outside the managed service provider business had heard of Datto. Indeed, few really understood MSPs in general despite their quietly becoming key providers of IT services to businesses large and small who have learned the value of leveraging managed services and consumption pricing to improve their operations.

That changed in the last couple years as providers of MSP-focused platforms, including Datto, became the targets of ransomware attacks aimed ultimately at the large number of businesses served by MSPs, but which were launched via the MSP platforms.

Datto, which provides a range of tools targeting how MSPs run their businesses and support customers, also became widely known, at least among the investor community, for its 2020 IPO, giving it a high profile in an industry known as a stronghold of privately held businesses.

Datto may be the target of an acquisition bid by its largest shareholder Vista Equity Partners, by another private equity firm, by big pocked competitors such as Kaseya or ConnectWise, or some other company. In any case, the IT world has not heard the last from this company. For more on where Datto sits in the industry and the financial community, click through the slideshow.

MSP: The Stock Ticker Says It All

In what was a very clever move when it filed for its IPO in late 2020, Datto chose as its ticker symbol “MSP,” which just happens to also be the very same part of the IT market from where 100 percent of its business comes.

Datto CEO Tim Weller told CRN during that time that the ticker was meant to be a recognition that MSPs are what made Datto the company what it is, as well as a reminder that Datto has no intention of selling its products or services directly to its partners’ SMB customer base.

“We focus on the technology, and we focus on helping partners grow and helping partners sell our technology,” he said. “But really, we’re investing in their business.”

There were some in the MSP community who were disappointed to see Datto appropriate their acronym as its stock ticker symbol, but the move was generally applauded by MSPs who thought the ticker helped elevate the concept of managed services to potential clients.

Important Player In An Important Business

Datto is one of the top providers of MSP-focused platforms. It competes with giants Kaseya and ConnectWise in terms of providing a complete MSP platform with RMM (remote monitoring and management), PSA (professional services automation), storage, security, and other tools to help MSPs run their businesses and support their clients.

The managed services business has gained widespread fame--actually, some might say notoriety--in the last couple of years because of ransomware and other cyber security attacks via the MSP platforms. This is because attackers have found ways to move undetected via those platforms into MSPs and from there into clients before launching their attacks.

In the recent example, Kaseya in July was forced to take its VSA RMM tool off-line in response to a ransomware attack. However, by year-end, Kaseya worked with the FBI to recover a large part of the ransom that was paid and helped bring a couple of the perpetrators to justice.

More Than Storage: Datto At The Center Of The MSP Business

While some reports call Datto a cloud backup provider, that is only a small part of the story.

Datto did indeed start out as a seller of data protection equipment from the basement of Datto Founder Austin McCord’s parents home in 2007 (and yes, his original backup appliance included Lego parts!), the company exploded out of the backup space in 2017 when it merged with Autotask, one of the top providers of MSP-focused platforms. That was at the same time Datto was acquired by private equity firm Vista.

Datto in early 2017 acquired Open Mesh, giving it a presence in the networking market, and has since also acquired a couple of security companies (see below). Key to understanding these acquisitions is knowing that, as part of Datto, they are focused exclusively on the MSP community.

Big Moves In Security

Datto in January acquired cybersecurity vendor Infocyte to help MSPs protect, detect, and respond to cyberthreats found within endpoints and cloud environments. Infocyte offers both endpoint detection and response (EDR) technology and managed detection and response (MDR) services. Infocyte continuously collects and correlates data from endpoints to identify potential threats, and its technology is supported by analysts in a Security Operations Center who can respond in real-time to cyberthreats.

“MSPs now basically are in the security business,” Datto CEO Tim Weller told CRN at the time. “When you come to work every day, the MSP needs to be thinking, ‘I have to secure the digital assets for my clients.’”

Datto in March of 2021 also acquired BitDam, an Israeli developer of cyber threat detection it called Advanced Threat Protection, or ATP. BitDam claimed at the time that ATP offers comprehensive defense against malware, phishing, business email compromise attacks, account compromise, and spam.

BitDam ATP+, which was released a month before the acquisition, was built in the cloud and for the cloud, and aimed to detect all unknown threats, identify threats at first encounter, protect business collaboration tools against advanced threats, and provide two-click integration with Microsoft 365, OneDrive, and Teams via the Azure Marketplace.

Datto Publicly Listed, But...

Datto went public in late 2020. However, about 70 percent of the company’s equity is still controlled by its original private equity investor, Vista Equity Partners, which just happens to be one of the potential suitors looking to acquire Datto.

On the day of its IPO, Datto opened at $27.10 per share, and by mid-November of 2020 peaked at $32.72 per share. However, since then, its share prices have fallen to a low of $21.15 per share on February 24 before recovering to Wednesday’s closing price of $23.37. The stock price late in the trading day Thursday was up nearly 10 percent after word broke about the potential sale of the company.

Jason Ader, an analyst with William Blair and Company, Thursday wrote that Datto just can’t get any respect.

“At present, [Datto’s] stock trades below its IPO price of $27 per share, despite a consistent track record of beat-and-raise quarters and steady improvement in top line and NRR coming out of the pandemic. Looking ahead, management has provided targets of $1 billion in revenue in 2024 and sustainable 20 percent-plus top-line growth, and has completed two strategic tuck-in acquisitions (BitDam and Infocyte) to buttress its nascent security portfolio. Takeover interest from potential buyers only provides us with greater confidence that the company is positioned as one of the clear leaders in the MSP software space—which is being driven by accelerating secular tailwinds (e.g., shift to remote work, digital transformation, labor shortages),” Ader wrote.