Deal Snapshot: SentryOne

Harris Williams advised SentryOne, a portfolio company of Mainsail Partners, on its sale to SolarWinds. SentryOne is a leading provider of database performance monitoring and DataOps software for the Microsoft Data Platform, including SQL Server, Azure SQL Database, and AWS RDS for SQL Server.

Here, Tyler Dewing, a managing director, and Priyanka Naithani, a director, both in the Harris Williams Technology Group, discuss what made SentryOne a compelling investment opportunity. They also share their advice for other buyers interested in the enterprise infrastructure software space.

What makes infrastructure software an attractive area?

Naithani: What is interesting about this space is the number of ways you can invest in it. We are spending time in several sub-sectors: developer tools and developer security operations, IT operations, data management, collaboration and communication, managed cloud services, and security. These technologies have been key enablers of—and are benefiting from—strong digitalization trends across industries, in which software-enabled workflows are automating manual processes.

gettyimages-1129377183.jpgThe resulting rapid growth in applications is generating demand on one end for development tools, open source, and application programming interfaces (APIs) that automate and shorten the development cycle. On the other end, application growth is increasing the need for IT operations software to manage, run, and monitor these mission-critical applications. Closely tied to the growth in applications is the explosion in the volume of data, which, in turn, drives a need for more data management, security, and analytics.

Applications and networks are also enabling more connectivity within and between organizations. In fact, the pandemic has placed a renewed focus on software that enables communication and collaboration, including contact center, customer service, and customer engagement solutions, as well as internal team collaboration tools. Finally, the proliferation and interconnectedness of applications, data, and devices has led to an ever-increasing number of access points, and has increased exposure to threat vectors, spurring investments in security and compliance software.

Dewing: SentryOne, for example, plays across key infrastructure software themes in application and database monitoring, data management, and cloud migration. Big companies are really in need of these solutions. Database optimization, for example, helps applications run better, faster, and more reliably. Data access and governance ensure the right users have permissions to the right data sources. When there are more users pinging an application and database because they’re all working in a remote environment, the database is naturally under more pressure and is more susceptible to issues. It just becomes all that much more important to have the tools to mitigate those issues. 

There have been several high-profile IPOs in the sub-sector recently, which is a testament to investor interest. Application monitoring and intelligence companies Datadog and Dynatrace, and data platform Snowflake, are just three of the fast-growing companies that have recently made strong IPO debuts. 

What made SentryOne particularly appealing to buyers?

Naithani: SentryOne has established itself as an industry leader in the database performance monitoring field. Its tools ensure users get real-time access to the data they need without performance issues. Over the years, the company has developed cutting-edge capabilities to optimize SQL Server performance, including its popular free query tool, Plan Explorer. Its offerings are part of the Microsoft ecosystem, and thus benefit from the strong growth of Microsoft Azure as a preferred platform for cloud migration.  

The technology ecosystem in which a company participates is an important point to consider. SentryOne was a great fit to build on SolarWinds’ portfolio of Microsoft-focused software tools. Also, considering that SentryOne’s offerings deal with the more complex workloads found in larger enterprises, and given its experience with software as a service (SaaS), this highly strategic combination will allow SolarWinds to serve the full needs of the mid-market and better serve larger organizations.

What advice do you have for other buyers interested in this space?

Dewing: Based on estimates of how much data has been migrated to the cloud, businesses are less than a quarter of the way into their global cloud migration strategies. Companies with IT software and services that facilitate cloud migration should have tremendous potential as workloads move from on-premises to hybrid models and private and public clouds. The market for data management, where SentryOne plays, continues to be particularly interesting. This also includes data quality, data reporting and analytics, and data security, which is critically important from both regulatory and privacy perspectives. 

Furthermore, as applications and data workloads are being deployed in on-premises, public cloud, and hybrid environments across online, mobile, social, IoT, and other emerging platforms, they are creating separate technology ecosystems. There is a significant need for parallel software, IT, and security tools that meet the unique requirements of these different platforms.

Naithani: This is a very opportune time to be a private equity investor in this space. A first wave of investments in infrastructure software companies has validated business models that can support M&A roll-up strategies and leveraged buyout models: high cash flow characteristics, embedded products with high switching costs, and low capital expenditure requirements. Concerns about technology obsolescence, which has been the primary deterrent, have been mitigated as players have demonstrated success through a portfolio approach. In such an approach, a mature, high-cash-flow, low-growth business is paired with and funds a high-growth, emerging-technology business in the same space.

What is even more exciting are the many exit opportunities available. We are tracking nearly 100 public strategic buyers, most of which are very acquisitive. The public markets have been very receptive to this space: There were over 10 IPOs in the last two quarters alone. And an increasing number of well-funded financial buyers like the cash flow characteristics, high revenue, and customer retention that come with these sticky software solutions.

For more information on our experience in the space, please contact our professionals. 

Published February 2021
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