Move would create two publicly traded companies focused on managed service providers and core IT organizations
SolarWinds is considering spinning off its MSP business to create a stand-alone company that would provide IT management solutions to managed service providers.
The Lowdown: Breaking off the MSP business would leave behind SolarWinds core IT business, which would continue to focus primarily on corporate IT organizations.
The Details: Officials with the Austin, Texas-based company said this week that the board of directors have given them the go-ahead to explore the spin-off, which would create two publicly traded companies. SolarWinds is a far-reaching company, with more than 3,200 employees worldwide and more than 320,000 customers – including 499 of the Fortune 500 – in 190 countries.
It also has more than 22,000 MSP partners that are serving more than 450,000 organizations. A separate SolarWinds MSP company would offer solutions that enable MSPs to offer outsourced IT services to SMB customers and to efficiently manage their own businesses.
According to company officials, a spin-off would enable shareholders to better evaluate the performance of the MSP and core IT businesses separately, giving them a clearer picture of both. It also would allow each entity to develop its own business strategy and decide how to allocate its money.
There’s no guarantee a spin-off will happen. If it does, it will be structured as a tax-free, pro-rata distribution to SolarWinds shareholders, who would own shares of both companies.
The Impact: The rationale behind SolarWinds officials’ consideration of a spin-off falls in line with thoughts by other companies – like Hewlett-Packard when it separated its PC and printer business from its enterprise IT unit – that have made similar moves. In this case, both MSPs and corporate IT departments would interact with completely separate companies that would primarily focus on them.
Background: Private equity firms Thoma Bravo and Silver Lake own more than 80% of SolarWinds, with the rest being publicly owned stock. The company this week also announced its second-quarter financial numbers, with total revenue reaching $246 million, a 7.5% year-over-year growth, with recurring revenue growing 12% to $212.3 million. Net income was $12.8 million.
The Buzz: “We are exploring a potential spin-off transaction because we believe that, if completed, a spin-off may enhance the successful operation of both the MSP and the Core IT Management businesses and increase their respective values,” SolarWinds President and CEO Kevin Thompson said. “By splitting the two businesses into separate companies, it may be that the business and related investment, spending, and capital allocation policies of each company could be managed consistently with each business’ objectives. Establishing specific and independent goals may enable both the Core IT Management and MSP businesses to manage investments and objectives that are more closely tailored to each business’ market needs and customer requirements. Should we move forward with the spin-off, we would expect that the Core IT Management business would be focused on maintaining our best-in-class profit margins, while the MSP business would be focused on long-term growth with strong, differentiated profitability metrics for a SaaS [Software-as-a-Service] business.”