On June 14, 2017, Continuum was acquired by Thoma Bravo through a Leveraged Buy Out or LBO for an undisclosed amount. The acquisition both increases the service offerings of Thoma Bravo and provides a model for other companies that want to expand their own capabilities and revenue.
Thoma Bravo has been active in technology for a long time, and Continuum is a provider of an IT management platform/solution for managed service providers that leverages a software as a service or SaaS model.
Continuum’s SaaS model allows companies to offer clients the services of monitoring, troubleshooting, and maintaining their IT infrastructure including backups and ongoing maintenance. It is a great offering for small IT firms that are not able to invest in infrastructure, but who have clients that need critical support.
Continuum states they have at least 5,800 business partners, which shows how highly fragmented the market is.
The transaction was a SMB play – meaning it involved small- to medium-sized businesses. Through the acquisition Thoma Bravo can bring further value to its own clients, and drive further profitability.
The SaaS Model
The SaaS model was advantageous to all parties in this transaction. It also makes for great opportunities for larger companies to grow their business organically on their own and inorganically through acquisition. By employing the SaaS model, companies can scale profitability and enhance their overall value based on several reasons:
- Service Providers are neutral/agnostic for companies.
- Supply chain, asset tracking, inventory, returns, and expense management are areas with which most businesses need assistance.
- Synergy, strategy, and education are other areas of great importance to businesses.
- Target markets of companies with 50 to 5,000 SMB users need quality IT support. Through the SaaS model, service providers can better support SMB clients.
- A niche, such as “Infrastructure support as a service,” can be created that does not interfere with other existing business operations.
This SaaS strategy can allow firms to enhance their value and attain exit multiples of 1x revenues or higher in that space. They can also establish recurring a revenue stream with at least 35% gross profit margins.
The acquisition of Continuum again shows how many opportunities exist and how fragmented the IT space is. It is a space Big Change Advisors continually watches and studies, and from which we’re able to regularly identify candidates for acquisition or business partnering.
Next month: A continuation of this discussion, and a look at the landscape and potential of Cloud Computing.
Steve Pomeroy is the founder of Big Change Advisors, a Los Angeles M&A advisory firm of business advisors and capital sourcing advisors for startups and middle-market companies. Since 1992, Steve has completed over 38 transactions including M&A, Capital Sourcing, and Public Offerings representing over $800 million in total transaction value. Through Big Change Advisors, Steve donates a percentage of all fees – or invites clients to donate a portion of Big Change Advisors fees – to help serve the homeless through the Los Angeles Mission. To request a free consultant, contact Steve here.