Inside The ConnectWise/HTG Acquisition
By Matt Pillar, chief editor
The pundits and prognosticators, myself included, have been predicting robust channel M&A activity in 2018. That activity got off to an exciting and immediate start with acquisition of HTG Peer Groups by ConnectWise, announced Jan. 5.
For the unfamiliar, HTG Peer Groups facilitates quarterly meetings for a 450-strong membership of MSPs and IT service providers. It’s made a reputation for blunt accountability and in-the-weeds, peer-driven business analysis that fuels member company growth. And by most accounts, it works. Independent reports put the EBIDTA of HTG member companies several percentage points higher than industry averages.
ConnectWise, should it even need an introduction, sells a platform of business management software applications purpose-built for MSPs and VARs (remote access and RMM tools, quote and proposal automation, client application monitoring, billing, and so on).
The deal isn’t a complete surprise, and here’s why. ConnectWise has had deep hooks in—and deep pockets for— HTG since its inception. It’s been the Group’s premier financial backer and strategic partner since 2008. For some time, status as a ConnectWise Manage customer has been prerequisite to HTG Empower membership, the group’s rationale being that this common platform creates efficiency in the peer meeting trenches because member companies can all speak the same language. Currently, just 5 percent of the group’s membership is not affiliated with ConnectWise.
That context, of course, leads one to question the intentions of the buyer. When I told my friend and coworker Tim Maciulewicz about the deal the day it was announced—and Tim knows both organizations quite well—he summed the question near-perfectly: Why buy the cow when you’re getting the milk for free?
Why It Works For ConnectWise
Given the opportunity to talk with Arnie Bellini and Arlin Sorensen, founders and CEOs of ConnectWise and HTG, respectively, I was sure to relay Tim’s question. Bellini was quick to dismiss the notion that ConnectWise has been getting any more milk from the cow than any other premier vendor backer does. “We didn’t buy HTG for member financial data. HTG doesn’t even own that data, Service Leadership Incorporated does,” said Bellini. “We made the acquisition because it aligns with our vision to sit at the center of the channel ecosystem and provide more for technology service providers.” The “more” he refers to includes the coaching, consultancy, and training programs offered by HTG.
I pressed Bellini on the value proposition of that offering for ConnectWise. He admitted it’s a long-term bet. “I have an MBA and I’m a CPA. I worked for PwC as a tech analyst. I recognize that, to a venture capitalist, this doesn’t look like a killer deal,” he jokes. “The value of this acquisition is in the consulting services we can offer on top of the software product.” He envisions a set of services that aligns with the ConnectWise software stack creating a differentiator in the space. “We think an investment in the ecosystem that will drive our partners toward success, [in this case consulting-based services] will yield long-term rewards for us. That might not make sense to a private equity firm, but we’re 100 percent private and we’re debt-free, which affords us an opportunity to do these things.”
Why It Works For HTG
Sorensen, meanwhile, says HTG has plenty to gain. “We had some big dreams at HTG. Through our own internal StratOp process, we set some aggressive goals,” he explains. “As we began to get real about executing against them, resource constraints challenged our ability to fulfill the vision.” ConnectWise, and particulalry its sales engine, he says, could provide the resources HTG needed to reach its future goals. “It made best sense to work with a partner that we already had deep ties to and synergies with,” says Sorensen.
Sorensen also says his membership can expect enhanced services, but no major disruption as a result of the deal. I asked him if there was concern that the acquisition might tarnish HTG’s vendor-agnostic reputation. “The reality is that we don’t plan to change how we engage with any of the vendors in our community. We agreed to that long ago, and we will maintain an open community,” he says. “While the requirements around ConnectWise Manage will continue in our Empower program, we won’t add Automate or Sell as requirements by any stretch. Our efforts are still focused on partner success through strategy and leadership development. Those are the things that can prevent them from growing, not the tools in their company.”
Meetings, Or Conferences?
As I’ve noted, HTG is careful to distinguish its quarterly peer group gatherings by calling them meetings, not “events” or “conferences.” What does that look like moving forward, particularly in Q4 when ConnectWise’s IT Nation user group is juxtaposed with the final HTG meeting of the year by a matter of days? Sorensen suggests that bringing the events together would serve members well, though there’s certain to be some skepticism about blending “peer group” and “user conference,” two flavors that typically haven’t paired. For the foreseeable future, doing so would require some fancy footwork; both entities are locked into contracts with their respective venues for the next 24 months.
Will It Work For HTG Members?
How this plays out for HTG members depends on a lot of moving parts -- chief among them the continuation of peer group value at a palatable cost. There’s also a tall perception management order facing both companies. HTG is known for an almost altruistic, vendor-agnostic, members-first approach to programming and content. There will undoubtedly be some skepticism that HTG will lose its independence as a result of the deal. HTG, in particular, will need to stay on point and on message in the short term and true to its intention in the long term.