Dear Joe: SMB Software M&A Rumors Grow Louder

Several tipsters say private equity and venture capital firms are preparing to buy up more software and cloud vendors. The moves, sources say, will seek to create platform suites that ultimately serve small and midsize business customers. Among the firms to watch...

1. General Catalyst Partners: Recently united Datto and Backupify. Other key holdings include Altiscale (Hadoop in the cloud); Black Duck (compliance management); and Data Gravity (big data); among plenty more.

2. Insight Venture Partners: Already has big stakes in Kaseya (IT management) and GFI Software (security). Also has key positions in Mirantis (OpenStack cloud solutions), Docker (container software), Parallels (virtualization and cloud automation) and the list goes on...

3. Summit Partners: Owns stakes in Arista (cloud networking); Continuum (IT management); NetBrain (network automation); JamF Software (Apple device management); and RiskIQ (mobile app security software); and plenty more.

4. Vista Equity Partners: Already has stakes in Autotask (business automation), ReturnPath (email security); and Websense. The company finalized a $5.8 billion fund in October 2014 and is poking around for bigger tech targets.

So What's Ahead?

Multiple sources have checked in with me in recent weeks, mentioning that the private equity and VC firms above are looking to take at least one of two steps:

1. Portfolio Synergies: In some cases, companies within existing portfolios will be combined or merged to create end-to-end solutions. The latest example is the Datto and Backupify deal. General Catalyst, which already owned stakes in both companies, essentially put them together in December 2014 to create a farther-reaching cloud backup and data protection company.

2. Tuck Ins: The private equity firms also are seeking to "tuck" smaller companies into existing portfolio companies. Somewhat recent examples include Insight Venture Partners approving Kaseya's buyout of Scorpion Software and Vista Equity Partners approving Autotask's buyout of CentraStage.

More deals involving the VCs and private equity firms are absolutely coming. A few deals could be announced as soon as Q1 2015, our increasingly chatty sources say.

Keep in mind: The upcoming deals are not exits. The true exits will come months or years from now, when the VCs or private equity firms begin to sell off or IPO the end-to-end SMB players in their portfolios.

Subscribe: Want to receive our blog headlines in your inbox each business day? Then subscribe to our enewsletter. Thanks to those who already have.