Cal Net Acquires inhouseIT: Inside the MSP Buyout
When Cal Net Technology Group acquired inhouseIT this week, ChannelE2E noted that the combined company would rank among California’s top MSPs. Now, it’s time to take a closer look at the deal through the eyes of four key Cal Net leaders — including:
- James Hwang, CEO
- Luca Jacobellis, president and COO
- Randy Nieves, CTO
- Laryssa Mereszczak, director of marketing
During a briefing with ChannelE2E today, the Cal Net team described the inhouseIT acquisition — including the cultural synergies, the planning, the core near-term priorities and plenty more.
Mutual Respect In Southern California
This wasn’t an overnight deal hatched on a cocktail napkin in a bar. Indeed, Cal Net and inhouseIT have maintained a cordial business relationship for the past several years. Both MSPs are growing companies that operate in Southern California. Cal Net’s roots are in Los Angeles, while inhouseIT operates mostly in Orange County.
Informal M&A chatter has popped up from time to time, but the discussions became more serious about six to eight months ago.
- As a 50-person MSP, inhouseIT realized that it would need to double-down their investment in the business to take the company to the next level. Selling the company to a synergistic suitor emerged as a key possibility.
- Meanwhile, Cal Net was 120-person MSP with financial backers — Olympic Valley Capital and Boathouse Capital. The company has been growing both organically and via M&A.
Previous Cal Net acquisitions have included:
- Alpha Actual, cloud-based IT services and document management, November 2015;
- Velocity Network Solutions, southern California IT support, January 2015.
“We’re always seeking net new opportunities,” says Cal Net CEO James Hwang. That includes organic growth opportunities as well as potential acquisitions — if the acquisitions deliver a certain of enhanced services in a meaningful way. inhouseIT certainly fit the description, especially since both companies had extremely similar corporate cultures.
Cultural and Technical Fit
On the corporate culture front, inhouseIT has seven core values (accountability, appreciation, communication, professionalism, integrity, profitability, caring). Similarly, Cal Net is built around strikingly similar core values.
That cultural alignment helps to ensure Cal Net can hit the ground running with inhouseIT. At the same time, it helps inhouseIT’s founders and owners (CEO Glen Ackerman, President Steve Bender) to maintain their own legacies in the industry.
There also are technical synergies. For instance, both companies run ConnectWise as their core PSA (professional services automation) while leveraging Ingram Micro Cloud for cloud solutions provider (CSP) services. During meetings between Cal Net and inhouseIT, the two companies also discovered that they had remarkably similar service catalogs. “It was like we were long-lost brothers,” quips Cal Net CTO Randy Nieves.
The companies also had similar cloud strategies — though there are nuances in such areas as infrastructure as a service (IaaS). inhouseIT, for instance, has Amazon Web Services expertise. And Cal Net taps into Microsoft Azure.
Cal Net had 120 employees ahead of the deal, while inhouseIT had 50 — bringing combined headcount to 170 team members and “minimal overlap,” Hwang says. The inhouseIT executive leadership team will remain in place for at least 12 months to ensure stability and strong customer service. Financial terms of the deal were not disclosed.
Cal Net and inhouseIT: Next Moves
Cal Net’s business started in Northern Los Angeles roughly two decades ago and has gradually stretched into neighboring counties. inhouseIT, meanwhile, had a deeper density business in Orange County. No doubt, the combined company will seek to be Southern California’s top MSP.
“Our first priority is normalcy,” says Hwang. “We have a great business and so do they. Our next priority is to leverage each other’s strengths.”
For example, Cal Net will extend its virtual CIO services to the inhouseIT customer base. Cal Net has had a team of virtual CIOs for roughly a decade. In stark contrast, many rival MSPs try to launch similar services but often find themselves getting stretched thin. “The reality is most MSPs have only gone surface-deep with virtual CIO services,” says Cal Net President and COO Luca Jacobellis. “But we’ve gone deep with that and it’s going to be a huge win for inhouseIT and their customers.”
The company will also invest heavily in a 24×7 NOC (network operations center) service, with major milestones expected in 2017. “A lot of MSPs say they have 24×7 but that means they have an answering service,” says Nieves. In stark contrast, Cal Net has its own NOC that’s physically staffed by technology support experts 24 hours per day.
While some smaller MSPs outsource their NOCs, Cal Net believes its customers want to know the technicians who are providing day-to-day and emergency service. That approach, the company believes, also allows Cal Net to understand the finer nuances of each customer’s business.
The company will also expand its overall footprint. Cal Net’s customers have been expanding their businesses into Las Vegas (Nevada), Phoenix (Arizona) and beyond. Not by coincidence, the MSP has been extending its support services into those and other regions. Customers in Colorado, New York and even international now leverage the company’s services.
Will Cal Net Make More Acquisitions?
On the one hand, the inhouseIT acquisition should keep Cal Net plenty busy for months to come. But on the other hand, the company isn’t ruling out more acquisitions.
As the company seeks to deliver enterprise-grade technology services to SMB customers, Cal Net will strive to offer consumable, accessible, reliable and affordable IT services in new ways. Often, that will involve organic growth while leveraging ITIL best practices for IT service management. But at other times, it may trigger more acquisitions, Hwang says.
No doubt, Cal Net’s ongoing relationships with its two financial backers — Olympic Valley Capital and Boathouse Capital — remain critically important. “Since day one, our relationships with OVC and Boathouse Capital have been tremendous,” says Jacobellis. “They are great, genuine people who listen to what the business needs.”
In this case, the needs involve a careful blend of organic growth mixed with a very strategic acquisition involving inhouseIT. Concludes Director of Marketing Laryssa Mereszczak: “Our core values, mission and vision are truly aligned on this deal.”