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Solarwinds considers MSP spinoff

SolarWinds, provider of network management technologies, disclosed the company is considering spinning off its MSP division as another publicly traded companies.   Investors and stockholders would become owners in both companies.   During its earnings report, the company disclosed its financial data for the MSP division for the first time.   Full coverage on Channel E2E is linked in the show notes.

Why do we care?

Disclosure – I am a SolarWinds share holder and former employee.

At the time of the recording, SolarWinds stock is up, so let’s observe this is all about creating more corporate stock value for the investors, and just announcing – even if they don’t do anything – caused a bump in valuation.    Well played.

If you want insight into why they might spin out, it’s in the interviews.  As reported by Channel E2E, John Paliguca, head of the MSP group, discussed the autonomy to acquire software companies doing $3 to $7 million in revenue that a spun-off company could pursue.  

I’ve commented that I don’t think these private equity backed companies are building anything – it’s clear their strategy is not to, but instead buy others.   

That’s the reason why you care.   The strategy is clear – spin out to buy more companies.  If you’re a vendor looking for your exit, the spin out would be great for you, as I would expect them to move on more deals.

For a solution provider, consider that as you think about the lifecycle of a vendor.    This is a path they are likely to go.  Day to day, it doesn’t matter for a solution provider.  This isn’t a shakeup, it isn’t any change in their strategy, nor a change in their offerings or capabilities.   It’s some movement of money to make investors more.   Just know that the PE backed companies are saying loud and clear that they don’t build, they buy.  

Source:  ChannelE2E, ChannelE2E, ChannelE2E