PE + Security = Profit? – Techstrong Research Review EP 4

here Hi, it's Mike Rothman. Again. Welcome back to the tech strong research review, and you'll may have seen in this week's introduction that it's not just me.

And and my partner in crime Mitch, let's say hi. Hello. Hello Mitch Ashley CTO.

Well, that's true. We we all so have a new guest today. It is Mike's bionic knee Mike's bionic knee is gonna be making an appearance.

Well, maybe he's kind of behind the scenes on this one. Ionic Steve Austin six billion dollar man. Yeah at this point it would be at least six billion on that front.

But yeah, it's been a week my friend. It's been a week. I know I just I was just floored.

I mean not that it happened to me, but it's Florida when I heard the news you're on vacation and yeah, we're on vacation, you know, and just a beautiful spot in in rural Italy and I took a little spill and and left my patellar tendon there and you know, I had to fly home early got surgery the other day. So Mike's bionic knee is here. So I'm kind of propped up in bed.

You guys can't know the difference because I got my background. But yeah, but I'm not too Loop. On the pain meds, so maybe a little more chill than normal, but that's okay.

There's still the Minecraft and we know that's right. Yeah just a little bit. So so what I wanted to talk about this week Mitch is um a number of deals that happen again, we're not like it, you know a newsy type thing.

I mean, it's really about the research side of it because I think that there are some long-term impacts but this week there were two very large private Equity deals of public security companies that were announced first. 3 billion a day later. 6 billion dollar acquisition of know before the security awareness training company.

Um, and this is on top of a whole bunch of other things. Right? So Tom has been very aggressive in the space.

They bought Barracuda, they've come a while ago and then they actually just sold them to KKR. They bought proof point back in April of 2021. So Thomas been very active in in the security space.

Um, and they've really kind of in effect cornered the market to a degree and identity and access management. So it wasn't just for drug, right? They bought paying identity about six to eight months ago, right?

They bought sale point and I think that deal is as recently closed and that was probably the biggest deal that they've done in a while so so on my owns sale point they don't ping they own Forge Rock now, they're not necessarily integrating them per se but they're all under one operating agree, you know umbrella now, they're gonna leverage, you know, a lot of the common practices that a private Equity Firm, you know brings forward, you know, like Tomah Bravo and It's interesting because as we're a little bit further along with security relative to devops or Cloud native infrastructure, we haven't seen a lot of that first wave of devops companies come public and then go private, right? Which security we're starting to see, you know, oh Ping Identity, you know, they got acquired by Vista Equity initially then all right, and now Tomah is, you know, taking them private again and and you're starting to see a lot of you know asset training, you know, and really because of the valuations coming back to you know, somewhat measure of reality here, but it it's an interesting when you think about it from an end user standpoint right from a customer standpoint, you know. A lot of these private Equity companies they bring forward, you know leverage they bring forward obviously better operational capabilities, but it's really all about generating cash flow on that front.

So they're gonna start becoming more efficient. They're going to you know, probably start increasing prices where they can so these are the things to start, you know, really thinking about you know, as a buyer if your company or a strategic partner of yours gets acquired by a private Equity Firm again, you have to start asking some questions one, you know, what's my plan B right? Do I have other technology that I can possibly bring to bear are they gonna fold this into somewhere else is management gonna you know be an upheaval what's support and and investment in the engineering side Gonna Be Right.

Is this a growth platform or are they, you know, basically just you know, milking the install base or they're just a lot of considerate apart. There's a lot of different paths and most of them are to bearable monkeys and they're usually not Not a lot of fun on the receiving end, but also internally they can be you know, it could be good from a financial standpoint but not always good for staff employees. Oh, you know, so I have a friend of mine who is in a company who you know got acquired by Vista and this is never lost money on a deal they've done mmm.

It's own believable. I mean, you know 20 something years. They've been doing what they're never lost money on a software deal.

I mean that's like incredible. So so then how to make money well every formulaic right? I mean that's that's what those PE and firms do right.

They know their process. They know their formula. They know I got to have their team and you know, it's it's kind of it's not totally rinse and repeat but it very much is.

Oh, I mean, they've got Play Books, right and they've got operating manuals manuals and and they have, you know, reporting packages and how they have to see their information and and again, it's not, you know, obviously if you're within one of those companies and I know many of our clients, you know do end up, you know, kind of going through this and Way shape or form over time, but you again I think the important thing from a customer standpoint is you do need to start, you know, kind of understanding. What is there development process going to be right? What is their level of investment commitment going to be right is it, you know, are they gonna starve the field?

Right? Are they are they going to you know start to build up and and you know, basically munge all these different things together like when Symphony bought The FireEye software and then they merged that with McAfee Enterprise, right? So that's now trellix.

So now you've got you know a private Equity that's got these two, you know Legacy assets that they're you know, trying to modernize and and move forward. You know, what does that mean? Right.

So these are the questions that you really have to kind of get your arms around because as valuations have come down, you know, we do have to factor in the reality that you know, I I think that that they'll they'll you know kind of mouth the words like oh this is a growth platform and all we're gonna continue investing and and we really what the reality ends up being all by cash flow. I mean ultimately that's what they're doing doing that for right and you know, I kind of certainly been on the receiving end of it and a lot of times I'm disappointed when it happens because if it's a company that I feel like it's really in in Innovative and doing some good things and they're gonna get consumed by a big company. It can go a lot of Ways but to your opinion, it seems like more often lately.

I'd say in the last five years or so. Companies are leaving some of their Acquisitions alone. You know, I just take you know, kind of light step in in the service now category we talked about them and another firm they got acquired but they left their brand alone.

It's a new it's a new category that they're not in right it's in observability and Incident Management for for service now, which is a different kind of company. So it makes sense but it seems so many other times it just sort of gets pulled in and whatever's gonna happen to it gets happens to it and whether it stays independent or or the brand stays, you know, it's own brand and as some autonomy maybe not a lot but where that happens long term, it seems like that's a growing Trend that maybe I'm just know if you few points, but it is you see it happening a lot more. Yeah, and because software is one of these businesses that has no incremental costs, right, you know and from a cost of good soul.

Camp points, so the Leverage is incredible. So you downloads are pretty cheap that can write did you know bits are again bits are not that expensive. So, you know, so that gives you the ability to make investments that gives you the ability.

It's just a different kind of business model and that's what's really driven and made some of these private Equity firms just so successful because they can streamline the go to market motion right leverage and doing some of these assets together to be more of pain, you know, I don't pay once I pay every year sort of idea and that generates a lot of cash flow generation. I just tremendous amount of and I mean listen to me clear, right, you know, especially when you're trying to you know, optimize for profitability, right and a lot of these cases, you know, it's hard to compete for resources. I'm not saying that this is easy right but but the economics of software and especially the economics of security software now, Make that, you know very in tune to you know, security or to private Equity coming in and and being able to you know, really make a lot of of hey, right?

And again, you take companies like know before and they do security awareness training, right? That's just and again, yeah, it's cool stuff. And and yeah, they have a lot of science behind it.

But at the end of the day you're training people that not be stupid. Right don't click on stuff and that's you know, that's five billion dollars for that and you know what they're gonna make a bunch of money there because they have Channel dominance, right? So they're gonna be able to hit the gas on that continue to roll up and that's a lot of what no before did they rolled up a bunch of local providers to get Global coverage?

Um, and they're the dominant player in that space and again you look at what Tomah has with all of their identity assets around identity governance and access around, you know Federation and and being an identity broker, you know, they've got psychotic and centrify to which is a lot of the You know pieces in the directory pieces of of the identity side of it now with four drop which is really an integration platform for that. They've got just a lot of the pieces there to really bring forward a new generation of identity management Suite to the degree that they decide to do that, right, you know, they have an indicated that they're gonna you know, merge all these things together on one platform, but you got to think if you're in the same family company, you're gonna you know work together to some hope to some great degree, you know, what things have changed too. I mean it wasn't that long ago sort of like either got my sis got bought by Cisco where you didn't get bought or kind of didn't matter.

Yeah, but and you you had to live with the strategy of it's on my favorite family of products or my platform or whatever vendor that I like, you know going back to bridge or Cisco or now Alto whoever might be it seems like that's changed a lot. I mean those folks are all well we're not but And and Cisco of course are still very much, you know dominant players, but there are other new dominant players with them too. It's not just Cisco right you bet.

So so that gets into the whole security platform story, right? So that's you know, you're seeing crowdstrike emerge as you know, kind of a player in that space along with Palo Alto starting to fold in capabilities and and we've done some work with with crowd strikes yumeo group on the security monitoring and and observability side as well. It's really long, right, you know scalable log Management in the cloud, but they fold in a whole bunch of other, you know kind of Technologies as well.

And then you know, we talk about some of these new guys and then there's the old folks too. Right Microsoft has done a dozen Acquisitions, you know kind of in and around security and identity over the last, you know, two to three years if not more right and they've got a very substantial if not the biggest security You know business out there so so it really is a platform game now and that's something that we're going to be talking about at predict for sure. So predict 2023 and you know, that'll hit I guess what's a date Mitch January 12th?

I think that's what it is. That's right. I'm gonna be up we're gonna hit security platforms.

We're gonna hit, you know stuff around devops and and the future devops obviously Cloud native infrastructure and where that's going and and wrap it up in a nice little digital transformation, you know bun from from that standpoint, but that's really gonna be the research show. So we're gonna you know, talk about our agenda for 2023 at predict this year. Well and that is just to kind of put a plug out there too.

There are sponsorships opportunity because we're gonna be I think we have four tracks where I remember right? We're we're gonna be talking about those specific things around plan being security Etc and it isn't sure if you're normal. We're gonna do a report.

You know with a company kind of thing, but it's going to be all round tables. Which so it'll be a different kind of conference. It's not you know, it's not the talking head.

It's maybe the the table of Talking Heads, but no slides none of that stuff. It's all discussion dialogue. Of course, we we've let a lot of those kind of sessions and love doing them, but people really respond to that too.

So, you know kind of reaching out to the sponsor Community vendor Community Technology Community. That's something you're interested in. Just go to Textron group Comm slash.

Tell me more. There's you can you know, find out how to get a hold of us. So a Shameless plug.

Hey, I wanted to bring up something kind of just to take a hard left for a moment. Okay, I wrote this article. I guess it was published last week.

It was about micro. It's called microservices explained and it was both talking about what our microservices because sometimes it just helpful to kind of lay out Foundation from a lot of good work that people have done but also it gets equated to service oriented architecture within the and with the growth within the evolution of monolith the service oriented and to to microservices. Yeah, they share the characteristic of yes their services, but when we came up with SOA, that was a very different time, right?

We were it was a way to kind of consolidate code and have very large. Groups of services to get bundled into this module and use a message bus or some mechanism to send transactions back and forth and my manage those mq series and things like that mq Series. Yeah, it's just the threat I could use you.

I got to use UDP on it on an interview the other day like yeah the UDP packets. We used to send back an S&P V2, you know, anyway, it's all another thing but where I was going with all this is we still deployed really large applications and we only did releases and once a quarter once every six months or once a year in the SOA days. I mean, it's still around microservices built for a very different purpose yes or services, but they're really small and they're made to be able to deploy not only deploy very quickly and in a few are a lot of them, but also scale up very quickly, so Don't be fooled by you know, it's not your father.

So, you know, your father's no but but I think for some folks that are trying to Anchor around what this concept is. I do think that there are direct correlations through good reference point. So up right?

It's a great it's a great reference point like hey, you know, so think about turning it to 11. I don't know which one of our clients was it, you know trilio or one of our Pals, you know, kind of did a you know a launch and and it was like, you know, turn it up to 11, right and don't spinal tap, you know kind of analogous living and metaphor. Um, what was that older than 10?

Yeah, so, you know and and again, I think that that's really a good I metaphor right which is you know, if you think about so as you know, kind of hey, there's the first inclination is starting to reuse some of your code and be able to you know, kind of architect around some of these modular capabilities microservices again takes that to that next level. Much more agile much more, you know smaller but you know more structured, you know, in order to you know, again kind of facilitate faster and and Tighter integration between these different mechanisms kind of an exponential eleven, right? It's like none other not just like Pew hockey stick around right?

Yeah as you adapt it, right and and I think it is it isn't a you know, okay, you know and then all of a sudden you just hit light speed right? I mean, I think that you do at some point, you know, kind of hit that Tipping Point that then it you know, really starts to to gather speed but you know, you don't need to get to light speed on day one, right? I mean you can't eat a great towards it and the beauties of microservices that you can start to replace some of these components and these capabilities as you are, you know doing things.

So, you know, yes you in a great with your existing stack and then you swap out the pieces and refactor as it makes sense. Well, it's like so many things, you know, they get smaller and we get a lot more. Of them.

So guess what securing them becomes more complex managing knowing what they are tracing, you know, things like that observability, you know emerged to be able to help with that and now and now those things intersect between security and and software and development cloud and a lot of kind of disciplines. It's funny to talk about a security company buy an observability product, right? Okay.

All right good. That's actually great. Actually, it's a good thing but it's not what I would have thought of three years ago now.

And and you know it they're still trying to figure out how to actually bring that to market right, you know to because they're you know, obviously different buying constituencies. Oh, yeah, you know kind of the folks and on a song, you know, the application stack and and the song so what we're you know that these companies are trying to figure out, you know, kind of how these these two come together. But you know, ultimately what we're The Leverage is is data, right and I need to store data in a very scalable fashion.

I need to do analytics on that data, right? Obviously, you're gonna do it slightly different set of analytics on observability. Then you are, you know from from a soccer or a threat detection standpoint, but it's still data and it's still analytics.

So so there is leverage there. The question is is they're gonna be leverage from a you know, kind of go to market and and a buying Dynamic standpoint, which is another that's a huge growth area for us talking about the whole data across whatever Spectrum you're dealing with security applications Cloud, whatever it might be but it is I mean I was explaining to someone the other day like why is cloud native such a thing and why is devops such a thing and I said well Yeah, imagine when you take a constraint we've lived in a world where compute power and he had to really be pay attention to how much you had and that's all you had and you had to really optimize things for that. He had to optimize things for storage had optimize things for network capacity.

And then let's take all those constraints away. And so you can get as much as you want whenever you want or dial it back down whenever you want pay for it as you use it's kind of feels infinite it's not but but those constraints aren't there anymore. So, you know, I don't have to go by twice the servers or twice the network capacity.

So I have it when I need it. I've got it already. I just use it.

Okay. Now you can start designing things and doing things differently which is why I devops and Cloud native and and we think about security with shift left and depth that cops differently, but it is what it's when you take a constraint out of a system the system will change, you know change pretty substantially that's Good as it should and that's where the Innovation really occurred. And that's where people make big advances when they figure out how to operate in a different way in that system without those constraints.

Exactly. So, all right. I I said my piece about you know, kind of the private Equity piece of admit you got your piece in about microservices.

We got our Shameless plugs in about predict and and oh one other Shameless plug, right? com called Data Ops and I think that's what you were referring to their Mitch. Um, so it is it is a big area for us in terms of you know, just getting on top of all the Enterprise data that's there and starting to understand from not just a management a performance but also with security standpoint as well as as you do start rolling out some of these applications.

So that's definitely an area we're gonna be you know looking into as well. And I want to mention too. I'm disappointing you won't be there but we we will be Tech strong will be at coupon in Detroit, which is what October 24th through the 28th.

And we're gonna be doing interviews there. We'll do I'll sit in in and help do some analysts meetings and things with you. So reach out to us if you want to get together or yes extra.

Yeah. I am disappointed. I'm not gonna buy my I had my plan.

I had my plane ticket. I had my hotel and then I need to like my avatar my little you know my mic on a stick face. Yeah or something like well, he's here he's here or dial in or whatever but So I'm really looking forward to coupon.

I wish we could been there together, but we're gonna do other things together. We love reinvent and a lot of stuff that other things coming up that will be yeah, so Alright cool, but I will be there at some of these shows. He'll be he'll be running after as fast enough.

Just just enjoy it while you can right. Alright guys, enjoy. So this is the latest episode of our Tech strong research review.

We will be back next week with another, you know, kind of timely discussion of whatever it is. It's on our mind at Ivers rolling around in our heads. We'll be talking.

All right. Thanks everybody right when it's You too, Mike.