ConnectWise, a managed IT services provider and software developer in Tampa, has agreed to be acquired by Thoma Bravo, a technology-focused private equity firm.
Financial terms were not disclosed, but the deal likely represents one of the largest sales to date of a locally owned privately-held firm.
The deal spotlights Tampa Bay as the next technology haven, because of the significance and size of the transaction, said Arnie Bellini, ConnectWise co-founder and CEO. Not only is Thoma Bravo expected to invest in continued growth in ConnectWise, but the deal also has the potential to create a Silicon Valley type of impact in Tampa Bay, with employees who have cashed out their stock holdings using their new wealth to start their own technology companies.
The deal is expected to close Feb. 28. Bellini will transition into an advisory role. Jason Magee, currently president and chief operating officer, will become CEO. Magee, a 20-year veteran of the tech industry, joined ConnectWise in 2011. He was named COO in 2016 and added the job of president in January.
ConnectWise has been called the area’s only “unicorn,” a designation for tech firms with a valuation of $1 billion or more. However, ConnectWise, with a valuation of $1.2 billion and $243 million in annual revenue, is considerably older than the startups or young firms that typically are labeled unicorns.
Arnie Bellini and his brother, David Bellini, started the company in 1982 in a bedroom in their parents’ home. Their father worked for IBM, and Arnie Bellini was certain that computers and technology were going to change the world.
“It’s exciting to have produced a unicorn in the Software-as-a-Service industry. It’s a hard thing to do,” said Steve Raymund, former chairman and CEO of Tech Data Corp. (Nasdaq: TECD) and now a member of the ConnectWise board of directors. He was part of a special board committee that worked on the deal. “I think it will shine a spotlight more on Tampa Bay and its potential attractiveness as a place to do technology.”
That’s been Bellini’s focus for the past several years.
“I’ve been on a search for the last five years to launch Tampa Bay as the new technology haven, the new Silicon Valley,” Bellini told the St. Pete Catalyst. “The shine is coming off Silicon Valley. It’s very expensive … ConnectWise was born here, grew here, stayed here, everything we’ve needed and every aspect of business community we’ve been able to find here in Tampa Bay. We think that’s pretty significant.”
Since 2016, ConnectWise grew at a 21 percent cumulative annual growth rate with more than 81 percent growth in earnings before interest, depreciation, taxes and amortization.
The company has never previously accepted outside investment.
“We’ve been able to do that because there’s such fertile soil here in Tampa Bay,” Bellini said. “We said, let’s attract the attention of Silicon Valley to Tampa Bay, all the investment is out there and they are looking for alternative places to invest, and we’re pointing to Tampa Bay and saying Tampa Bay is the place.”
ConnectWise has 1,050 employees worldwide, 800 of them in Tampa, and the company has been employee-owned since the mid-1990s. More than 70 of its employees will become millionaires when the cash sale closes, Bellini said.
“Over $270 million is going into the hands of non-founders. That’s going to change the lives of hundreds of families in Tampa Bay and ConnectWise families worldwide,” Bellini said.
That will be a major shot in the arm for Tampa Bay, said Stan Levy, a member of the ConnectWise board of directors and chair of the special board committee.
“There’s a lot of people getting a lot of money. They are young and energetic … These people are addicted to starting companies and now you are giving them the fuel to make it happen,” Levy said.
Best path to growth
For the last five years, Bellini looked at potential partners for ConnectWise to help it grow to the next level.
The company was poised to go public a few years ago. It had a syndicate of bankers lined up and a preliminary offering document prepared, but realized it wasn’t the best direction for ConnectWise because of “the extreme level of scrutiny needed to be a public company,” Bellini said.
It then began exploring private equity and strategic investment options. Bellini talked to Cisco (Nasdaq: CSCO), a $50 billion tech giant, and interviewed eight private equity firms before settling on Thoma Bravo.
“It had nothing to do with who will give us the best price for the company. It had to do with who is the best long-term partner and fit for the company, who can help accelerate our strategy, commit to our mission and vision and the success of our partners,” Bellini said.
Thoma Bravo has long recognized ConnectWise’s position as a leader and pioneer in the managed service provider and broader IT services space, said Robert Sayle, partner at Thoma Bravo.
“For nearly 40 years, the company has been the market leader in providing the most comprehensive integrated software solutions to its community of partners,” Sayle said.
Thoma Bravo has a series of funds representing more than $30 billion in capital commitments and just raised $12.6 billion for a new investment fund. “We are one of the first investments out of that fund,” Levy said.
While the terms of the ConnectWise deal were not disclosed, Thoma Bravo has made five deals larger than $2 billion, four of them since December 2014 and all of those in the software industry, according to PitchBook.
Private equity firms have acquired many of the large managed service provider software companies in the small-to-mid-size business market, Channel e2e said earlier this month in a report that speculated Thoma Bravo would acquire ConnectWise.
The Thoma Bravo investment is expected to accelerate growth at ConnectWise.
“As we’ve been going through this process, we were looking for the best fit, and within that best fit, we were looking for the alignment as to who saw the value in what we did. We are a very partner-community focused company and we were looking for a partnership that would see that value,” Magee said. He cited Thoma Bravo’s support for IT Nation, a major industry event sponsored by ConnectWise.
Not only did Thoma Bravo see value in what ConnectWise is doing, but the private equity firm also bought into the strategic plan for the next few years, including a focus on cybersecurity, Magee said.
Thoma Bravo has a stellar reputation in the SaaS space, with lots of experience and know-how, Raymund said. “I think they will be a terrific owner for the company.”
Holland & Knight served as the legal advisor to ConnectWise. Kirkland & Ellis served as Thoma Bravo’s legal advisor. Owl Rock provided financing for the transaction. Raymond James & Associates was the exclusive investment banking advisor to Levy and Raymund, who made up the special board committee.