Datto looks for $4B IPO valuation
A local company is aiming for a $600 million haul for an initial public offering of stock this week, more than a dozen years after its founder returned to his Connecticut roots to launch the company in Norwalk, eventually adding hundreds of employees there.
The IPO will value Datto at nearly $4 billion, including the value of stock retained by its investors, and cements its status as a key player at a critical corner of the digital industry, providing data backup and cybersecurity services to smaller businesses. The company joins the Priceline predecessor company of Booking Holdings among Connecticut’s biggest internet-era IPOs.
Datto can now issue stock going forward as needed to fund future growth, with the company currently listing 50 open positions in Norwalk.
Datto will use the ticker symbol “MSP” on the New York Stock Exchange, the IT industry acronym for managed service providers. Datto has more than 17,000 such companies in its MSP partner base that rely on Datto as the backstop to safeguard digital files and data for their own customers,
including through cybersecurity services Datto has added in recent years.
Newtown native Austin McChord, 35, created Datto in 2007 after graduating from the Rochester Institute of Technology, initially with a plan to sell data storage devices for homes and small businesses. McChord pivoted Datto quickly after discovering a far larger market — maintaining back-end systems to allow smaller firms, which run information technology systems on an outsourced basis, to offer data backup to their customers.
It is a strategy echoing that of Xerox a half century ago, which built itself into a global giant by exploiting an army of independent office technology installers as distribution outlets. Datto and Xerox have tandem geographic connections with adjacent headquarters in Norwalk’s Merritt 7 Corporate Park and roots in Rochester, N.Y.
McChord sold Datto in 2017 to Vista Equity Partners, which merged it with Albany, N.Y.-based Autotask in a $1.3 billion transaction. McChord stepped down as Datto CEO the following year, with Vista installing Tim Weller as his replacement. McChord retains a 13 percent stake in Datto that would be worth well over $500 million at the IPO’s target price range between $24 and $27 a share.
Weller had put together the 1999 IPO of Cambridge, Mass.based Akamai Technologies, an early pioneer in “mirror” architectures for the internet that speeds the loading of webpages when traffic spikes. Akamai co-founders Tom Leighton and Danny Lewin were inducted three years ago into the National Inventors Hall of Fame.
Lewin died aboard American Airlines Flight 11 in the Sept. 11, 2001, terrorist attacks, with the congressional 9/11 Commission crediting him with attempting to overpower the hijackers during the flight.
Entering October, Computerworld listed Datto among the most-anticipated IPO filings remaining this year alongside Airbnb, information security vendor McAfee, and data analytics provider Palantir. A few weeks before the Datto filing, the cloud data services giant Snowflake raised more than $3 billion in its own IPO, a record amount for a software company.
Datto did not indicate any immediate plans to hire additional people with the IPO proceeds, indicating it will plow most of it into paying off debt it’s carrying as a result of the Autotask-Vista deal that, as of June, totaled $577 million.
Now a Datto director, McChord declined comment Wednesday, citing regulatory restrictions on information companies can share in advance of IPOs, outside of public filings with the U.S. Securities and Exchange Commission.
Under Weller, Datto revenue totaled $459 million last year, an 18 percent increase from 2018. While the company reported losses of $69 million over those two years, it turned the corner in the first half of 2020 with profits of $10 million.
In an open letter accompanying the IPO filing, Weller credited McChord for building what he called “a rare, honest culture of disruptive technology creators” as Datto’s foundation. In a June webinar, however, Weller acknowledged the disruptions caused by the coronavirus pandemic.
“It’s a pretty simple formula here (and) it hasn’t changed since Austin founded the business — we play the long game, we invent (technology) for MSPs to sell, we serve you 24/7,” Weller said. “If that all works out, Datto seems to just grow. ... I am less willing to stick my neck out now and say we know the trajectory of (the) economic crisis, other than I think that it’s going to be persistent and I think we all have to function now — and grow — in the new normal.”