The Philosophy of M&A: Anexio’s IT Services Growth Strategy
At first, it’s difficult to hear Tony Pompliano when I reach him on the phone. The Anexio president and CEO is killing time in an airport, but he assures me it’s a good time to chat as he seems to relocate to a quieter part of the terminal.
We never discuss exactly where he’s headed, but given the man’s background, it becomes easy to imagine him flying off to handle some sort of important deal. Even within the context of our short conversation, it’s evident that Pompliano is a man who enjoys making deals — a mindset that helped him create Anexio.
Anexio bills itself as a leading “Desktop to Data Center” infrastructure-as-a-service company. The company recently landed on the Inc. 5000 list of America’s fastest-growing privately held companies. Anexio’s compound annual growth rate over the last three years is 127 percent and revenues hit $14.2 million in 2016.
Even with numbers like that though, it’s been a long road for the company’s leader.
“I’m about 35 years into my overnight success,” he jokes.
Pompliano began his career in the telecom industry in the days of long-distance telecom competition. His first job was with MCI in the early 80s. Over the next 20 years, he worked in a variety of positions, including sales, operations, and engineering.
“I learned a lot. Not only about business and technology management in general, but a lot about competing and how to serve customers and how to be pretty scrappy when it comes to gaining market share,” he says.
From there he moved to AT&T where he ran the company’s managed networking solutions group which he describes as a $400 million traditional business managed service provider.
“But that was a different deal from a cultural perspective,” he explains. “At MCI we were the renegades, the rebels, the take-no-prisoner guys. At AT&T they were defending the fort.”
The experience helped Pompliano realize he was much more of an entrepreneur than a company man. That epiphany helped lead him away from the Fortune 500 arena and for the last 15 years he’s been working for private equity-backed firms and attempting to grow those businesses.
The Philosophy of M&A
In fact, Pompliano views Anexio as the culmination of his 30 years of experience. His mix of technology experience, M&A work, and financial management has given him the tools to make the company successful. Anexio opened its doors about four years ago after he saw an opportunity. He saw the space as fragmented and begging for amalgamation.
“I believed there was an opportunity to do some consolidation in the lower end of the market by acquiring small, regional, if not metropolitan-focused firms. Put them together, create some scale, extract synergies and put together an ecosystem of IT services that were data center-centric,” he says, explaining his vision of a group of services that could be sold using the data centers as the underlying infrastructure, including things like cloud storage, disaster recovery, network solutions, and more.
To that end, Anexio has completed five transactions in the last four years, that Pompliano says further accelerates that vision. Most recently, the company bought up Net Data Centers’ assets for an undisclosed amount. With the way he speaks about it, his M&A strategy is almost a philosophy for Pompliano. Indeed, only about 20 percent of the company’s growth over the last four years has been organic. When I suggest this to him he explains that it’s more about starting with a theory and proving it’s true than creating an overarching philosophy.
“I think this is true in most business successes. They all come together by starting with a story. Something that grabs people’s interest,” he explains. “But stories, unless they’re data points, are nothing but a story. So you’ve got to be able to have proof of what you’re trying to accomplish.”
In Anexio’s case, he says they were able to identify five companies, worked through to an agreement of purchase, and integrated them into Anexio’s umbrella.
“That’s a lot to be proud of, in my opinion, in terms of what we’ve been able to prove,” he says. He adds that in this calendar year the company will double its revenue run rate. The company now boasts eight data centers in the markets of Northern Virginia, New York-New Jersey, Northern California, and Southern California.
“We’re unique in that we have very sophisticated, highly reliable and secure data center space that’s as good as anybody’s in the industry,” he says. “Our neighbors in many of our data centers are companies like Google, Microsoft, Yahoo, and Facebook. So we’re never questioned in terms of the physical security, the redundancy, and scale of the buildings we’re in.”
The Challenge Of Identification
It hasn’t been all roses for Anexio though. Pompliano points out that buying small companies is as hard or more so than acquiring large ones. Smaller companies are usually run by inexperienced people who lack the sophistication of a larger entity.
“You have to be part psychologist in addition to being a financial engineer and a businessman with some acumen,” he jokes.
But the biggest challenge for Pompliano is identifying potential M&A targets. Companies of that size aren’t typically represented by an investment banker or sophisticated broker and as a result, they often don’t represent themselves well in terms of the information they disclose. That makes them difficult to work with, Pompliano says.
Overall, he says that a 50 percent success rate is pretty typical for mergers and acquisitions. It’s common to spend a lot of time on a deal that never closes.
“I mentioned that we’ve had five transactions in five years,” he points out. “I didn’t mention that we’ve had six other companies under letter of intent that we never closed for a variety of reasons.”
Pompliano sees a number of changes on the horizon, including industry noise around hyperscale public cloud providers. He believes Anexio will have to work to stay relevant in the changing environment but he doesn’t seem worried. Indeed, his excitement for the overall industry is palpable.
“We’ve never had a larger pipeline of opportunities that we’re managing,” he says. “Both in terms of the number of opportunities, but also the total contract value of them. Now it’s up to us to execute and continue to delight and provide fanatical customer service to people and make them happy.”
For Anexio, Pompliano says that means continuing to hone the company’s service portfolio and continue making acquisitions.
“We’ve got deals that we’re currently evaluating and I wouldn’t be surprised over the next 12 months we do another one or two deals that are meaningful and impactful in size,” he says.
We’ll be watching.