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Why CRN is calling cloud software companies the next big bet

“Private Equity Power Play: Why Solution Providers Are the Next Big Bet”

Our recent acquisition by leading private equity firm, Madison Dearborn Partners (MDP), is making a lot of noise. In fact, CRN interviewed MDP managing partner and Intermedia Chairman, Zaid Alsikafi, and our CEO, Michael Gold, for its latest cover story. The question – why are private equity firms taking such an interest in cloud software companies?

The channel and private equity investments go hand-in-hand

Private equity deals across the channel are at an all-time high. According to martinwolf M&A Advisors, private equity firms invested $25 billion in the channel in 2016 (excluding deals that did not disclose financials). Furthermore, last year nearly 70% of transactions, inclusive of application and systems software, IT services and distribution, or VARs, involved private equity firms.

The fact that private equity firms are making investments in our space is a terrific thing for the channel. The channel has a massive influence over IT spending and driving forward cloud adoption. Smart money recognizes the opportunity ahead and wants in. MDP firmly believes in Intermedia’s channel-first strategy and in enabling our partner community. The partnership enables us to further invest in our cloud management platform and build the business around our partners.

What about cloud software companies is grabbing people’s attention?

Cloud software businesses are typically subscription based, and the successful ones are growing with very little churn. But, while most cloud software companies deliver a predictable subscription model, the reality is that most are not making money. So why does Alsikafi see cloud IT services as “a growing opportunity for investment”? Because the diamonds among the coal are truly worth searching for.

Private equity firms are interested in investing in growing cloud software companies with a predictable profit stream. With the majority of IT applications still on-premise, there is a tremendous opportunity ahead for financially stable cloud software companies to help move on-premise applications to the cloud.

Intermedia is a cloud IT diamond. During the past five years, Intermedia has nearly quadrupled in size. We’ve more than tripled revenues, operating profits, users and our product portfolio, and we’ve been delivering cloud IT applications on a predictable and consistent basis for 20+ years. We’ve also proven that we can attract channel partners with our broad suite of services.

I do think you are seeing more investments and we will continue to see more investments in this space…I think (the channel) will continue to be an opportunity for investment in the future, just given the environment — Zaid Alsikafi, MDP managing partner and Intermedia Chairman.

 

About Melanie Lombardi

Melanie Lombardi is Intermedia's Senior Communications Manager.