You have to spend money to make money, and that’s certainly what Zix has in mind. The email encryption provider with a $300 million-plus market cap recently acquired AppRiver for $275 million. This acquisition was bolstered by an additional $100 million preferred equity commitment from True Wind Capital, a private equity firm, and a $200 million debt commitment from additional banks and capital market commitments.
Mundane financial news an IT executive shouldn’t care about, right? Think again. If you are a Roaring Penguin, SpamStopsHere or AppRiver customer, this news will actually have a significant impact on you.
Price Increases On The Way
We’ve written about changes and consolidation in the industry before. There was Forcepoint’s partner cull (dismissing those SMB 500-2000 user Websense partners), Barracuda’s upsells on renewals (after being bought by another private equity firm), and Mimecast’s price increases (affecting MSPs). And of course AppRiver recently acquired Roaring Penguin and turned to focus the combined offering and advantages of the deal on an MSP customer base.
The email security market is broad and distributed, with a multiplicity of providers, products and channel programs. This normally is great – great for competition and great for quality, along with delivering the best offering to customers and service providers.
Reality might be a little different. Private equity firms see this as an opportunity to leverage their power, join forces and consolidate channel programs. This gives customers fewer options, and allows providers to raise prices rather than producing real value or delivering innovations to said customers.
Thi pattern has been seen in many industries. Saas-type subscription-based businesses like email security are targets of private equity. The pattern: Acquire, Consolidate, Rationalize, Grow, then Sell. This is absolutely brilliant for making a lot of money for investors, which is what private equity is all about. On the other hand, gone are the twin visions of innovation in a complex industry and service to a customer base needing help and support.
AppRiver Doubling Prices
Why Zix would pay so much – almost the equivalent of its own market cap – to acquire AppRiver? On some level this could be about providing email security services, but if that were the case, what are we to make of Zix’s existing offering of SpamStopsHere since their acquisition of Greenview Data in early 2017? Just like Roaring Penguin before it, expect Zix to benevolently neglect and soon End-Of-Life SpamStopsHere to encourage customers and partners to the newer more lucrative platform.
This acquisition isn’t about stopping spam, it’s about generating growth through AppRiver’s 4500 partners – something that is explicitly called out on the acquisition conference call as a benefit of acquiring AppRiver. The methods here are multiple: sell Zix products to AppRiver partners, sell AppRiver products to Zix partners, and raise prices as high as those partners will bear to keep investors happy.
As the halls of r/msp would have it, this process couldn’t have kicked off soon enough:
Life is tough when you’re a Bronze partner…
If you’re experiencing this price increase, you’re not alone. We found this rant really sums up the pain that customers and partners must be feeling at the hands of their vendors – first from a SolarWinds MSP migration, and then Roaring Penguin and AppRiver. Prices will be exorbitant no matter where they go and will not reflect the value received in return.
In this case, this service provider has gone from one product they like, was forced onto another, then left for a third, then was forced on another and is now confronted with a price increase, all of which they have to explain and pass on to their customers. Good service, easy management, decent margins, and a reliable product shouldn’t be so hard to find, as this other user seems to be wanting.
Why You Need to Make a Choice
Every time you accept such a price increase as an MSP, you make it easier for companies like this to increase prices in the future, without offering you anything more in value. Companies like the new Zix-AppRiver combo – with a combined $167 million in annual revenue, 80,000+ total customers and healthy margins and growth – are producing those results by betting that they will earn more money by raising prices despite the customers they lose.
Don’t let private equity machinations pass the cost of an acquisition on to you. Consider an alternative that you can rely on.