Building A Platform Company
When H.I.G. Capital made its first foray into the channel with the acquisition of 80 percent of General Datatech, the Dallas-based solution provider more commonly known as GDT, it was looking beyond the company’s $1.2 billion in revenue and its strong services capabilities. Instead, like so many other private equity companies in the past couple of years, it looked at the possibility of rolling up smaller solution providers and building an industry-leading titan from what has been and remains a very fractured community of smaller solution providers.
Using GDT to roll up other acquisitions was the intent from the start, GDT CEO Tom Ducatelli told CRN in an exclusive interview. It is a move that despite all the consolidation that has gone on so far still offers investors and their chosen solution provider partners big opportunities, Ducatelli said. “For those [solution providers] who are not, or are not interested in, investing additional funds, the best way for them to migrate their business, put it in the hands of a growth-oriented business, protect their people, and find a fairly valued transaction, it’s going be through M&A activity,” he said.
There’s a lot of M&A going on in the channel, and the acquisition of 80 percent of GDT by H.I.G. is indicative of the trend. Here is more on how Ducatelli sees the channel investment environment, and why he thinks the changes are happening now.
GDT just unveiled an investment from H.I.G. Capital that actually closed in the second half of 2021. What is happening there?
Our previous owner J.W. Roberts, who is now our chairman of the board, decided it was the right time to partner to get some external capital and better position the company. We’re doing a lot of investments in growth, in managed services, professional services, our licensing business, and obviously our core data center business. So it was really time where he felt the need to get additional capital in so we could both organically grow and then look at acquisitions. So he stayed on as the chairman.
H.I.G. is a tremendous is partner for us. They have a wealth of experience and knowledge in the IT solution space. The portfolio managers that we work with are top-notch. So we couldn’t be happier to be partnered with them. And now our role … is to execute against our strategic imperatives, the growth strategies around expanding that services portfolio. GDT has always been a solution provider. We never considered ourselves to be in the VAR or reseller space. There have always been a lot of services wrapped around the solutions that we provide. But the hypergrowth that we are expecting to get from the new leadership and the investments in hiring new reps, new solutions architects and engineers across the country, and then underpinned by ability to do a couple of acquisitions, will help us hyperaccelerate some of the areas that we want to focus on.
Is this the first time outside investors have invested in GDT?
We were privately owned since 1994. Our founder J.W. Roberts had the company the whole way. I joined about five years ago. In 2021, we crossed over the billion-dollar threshold, did about $1.2 billion in sales. And our plan is over the next few years to double that. And we see a strong market, strong customer base, clients looking to focus on their core competencies and partner with IT professionals that do what we do best, which is helping them either solve business issues, solve tech problems, or become more efficient in leveraging emerging technologies.
How big a stake does H.I.G. have in GDT now?
They’re roughly 80 percent. And J.W. retained 20 percent. So he is absolutely vested in our success.
How much did H.I.G. actually invest in terms of dollars?
That was not disclosed. But from a valuation standpoint, I would just tell you it’s a very fair market. But the key for this again is the growth element. As you know, 2021 was an incredibly hot market for acquisitions and integrations of companies. And H.I.G. purchased GDT as a foundation platform, which they only do every once in a while. And that will create the ability to layer on other entities.
So GDT will become a platform for rolling up other solution providers?
[H.I.G.] viewed GDT as being able to provide that foundation both from a national as well as our global business to pick some of the more higher-margin technologies, the managed services, the professional services, a lot of the hosting that we do for customers and their data. That will continue to be a core competency for GDT. But really the main focus, just like for every other integrator out there, is looking at how do we become more sticky with our clients. How do we get to do more services and obviously more managed services, whether it be Network as a Service, could be SD-WAN as a Service, could be Data Center as a Service, whatever comes out, we have to be able to provide.
[Using GDT to roll up other acquisitions] was the intent from the start. And a big part of the discussion between GDT and H.I.G. was, what would that look like four years down the road, and what economies of scale we can offer. GDT is invested significantly in world-class systems.
There is a lot of merger and acquisition activity going on in the channel, including private equity companies investing in one solution provider as a way to roll up others into a larger organization. Why is this so attractive?
There’s two facets. One was the concern that there was going to be a change for business owners in the capital gains tax. That turned out not to be the case. The other is, many of the founders of the VARs, the resellers, the integrators are hitting an inflection point of looking at their exit strategy. And if you don’t have an exit strategy, something’s going to happen. You’re not going to be able to keep up with the market. The market’s going to take advantage of you being at a competitive disadvantage. So many of those individuals are now reaching out proactively and coming up with their exit strategies. I want to partner with those who share the same cultural values. They want to find a place where their companies can thrive and continue to be successful.
We have talked to many, many business owners, and all of them share the same philosophy: that their people are taken care of, that the business that they have vested their sweat equity and built over the years is taken care of, and that they materially can be a fundamental part of that business moving forward. Which is why in our case J.W. Roberts continues to be involved in the business. … It’s coming to the point where people who started their business in the ‘80s [could find themselves] at a competitive disadvantage. Now that’s not to say people aren’t staying the same size and transforming themselves and specializing. But for those who are not, or are not interested in, investing additional funds, the best way for them to migrate their business, put it in the hands of a growth-oriented business, protect their people, and find a fairly valued transaction, it’s going be through M&A activity.
As we start 2022, what are some of the key challenges that your clients and your people are facing?
You’ve probably been beaten to death with the supply chain conversation. So we’ll just say that’s just something we have to deal with. It’s part of the business. In 2020 and 2021, it was a unique opportunity to deal with. In 2022, if you don’t have your plans in place, if you don’t know how to deal with the supply chain, you’re going to be dead. We are focused on leveraging our logistics, our supply chain to support the services-focused growth that we have. We’re seeing clients that, whether it’s due to COVID, whether it’s due to the need to refresh, there’s a lot of advisory solutions going on where they’re looking for service subject matter experts that are able to integrate certain technologies. Clients that can’t get their hands on product for four or five months still need to operate their business, and they need to do it more efficiently.
And due to COVID, a lot of the traditional off-shore resources that were brought in are not able to do that anymore. There’s a limited influx. So there’s a lot of opportunity for U.S.-based service providers to leverage existing on-shore resources to do a lot of the work that was being done by some of the off-shore resources that can no longer transition in and out of projects.
We also see a tremendous opportunity with the current state of affairs in our security practices. So we do everything from end-user support to data support to compliance. We’re FedRAMP [Federal Risk and Authorization Management Program] certified. So we utilize the best technology and the best resources from a security standpoint. But I think that is just going to be table stakes.
GDT has a large data center business. Has that been impacted by a shift to the cloud?
One of our biggest service offerings is around providing migration services, which is key. You’re not going to stop the cloud migration. So we figure out how to assist clients in migrating to the cloud, but we’re also at the same time seeing clients migrate from the cloud back to some on-premises where they realize it can be more cost-effective or based on a security concern or their IT strategy requires some type of on-premises component. We’re able to play in both worlds very well. I always say, when a customer has an issue, there’s an opportunity. It could either be migrating to or migrating from, and if you provide expertise in both areas, you can still be involved in the account. …
On the data center side, we’re also one of the largest service providers to the service provider industry. So the telecommunications, the cable providers, restaurant, retail, hospitality clients, health care, as we do deployments, we’re seeing those industries really digest some of the more innovative technologies.
How is the U.S. economic environment impacting your business and the business of the channel overall?
We’re looking at 2022 to be an extremely bullish market. I always look at technology as the safest place to be in because everyone needs to update, everyone needs to move in technology. … There’s more really cool technology coming out from companies now than ever before. And our goal is, again, not to be all things to all people, but take what our solution verticals are, find those best-in-class technologies, and then create solutions that we can package and go solve business challenges for our clients.
GDT in December hired Dan Mosley as its new chief revenue officer. Is this the first time the company has had a chief revenue officer?
No. I was the chief revenue officer for about four and a half years, and then was playing dual duty for the last year and a half as CEO and chief revenue officer. We partnered with H.I.G. Capital as an acquisition partner. We closed that transaction about the second quarter of last year, but we just announced it. We knew that as part of our growth trajectory, we had to get me out of playing multiple roles, and bring in a dedicated person as a chief revenue officer. I had met Dan many times in the industry at different events. He has a great reputation with partners growing business. He was part of the Dimension Data acquisition by NTT. I’ve also brought on a new CFO, a new chief human resources officer, and a new COO. So as part of this, GDT is poised with an entirely new leadership team to hit the ground running in 2022.