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Effectual Acquires JHC; Private Equity Backs Cloud MSP’s Expansion

Effectual, a cloud-first MSP and professional services company, has acquired JHC Technology, an Amazon Web Services (AWS) and Microsoft Azure consulting partner with public sector expertise.

This is M&A Deal Number 17 that ChannelE2E has covered in 2020. See the complete M&A deal list here.

Effectual of Hoboken, New Jersey, has also raised new private equity funding from Catalyst Investors and a follow-on investment from Lumerity Capital, the cloud MSP said. The initial Lumerity Capital.investment surfaced in November 2019. The overall Effectual war chest apparently involves $50 million to fuel organic growth plus more acquisitions.

Private equity activity in the MSP market has been especially frequent in recent days. MSP buyers and investors this week include such PE firms as Frontenac, M/C Partners, One Equity Partners and Trinity Hunt Partners, ChannelE2E reports.

Effectual Acquires JHC Technology: MSP Deal Background

Effectual was launched by veterans of Datapipe, which Rackspace acquired in 2017. The MSP is an early supporter of VMware Cloud on AWS. Moreover, Effectual leverages next-generation cloud monitoring, security, migration and management tools such as Alert Logic, Cloudability, Datadog, HashiCorp and Turbot.

JHC Technology, headquartered near Washington, D.C., is an AWS Premier Consulting Partner holding various government certifications.

Effectual’s Robb Allen

In a prepared statement about the deal, Effectual CEO Robb Allen said:

“JHC has earned a well-deserved reputation as a leader in enabling the public sector to modernize their IT infrastructure. We are excited to partner with them and leverage our combined knowledge and experience in optimizing cloud services to scale both our operating model and service delivery capacity.”

Added Craig Atkinson, CEO & co-founder, JHC Technology:

“Combining the JHC and Effectual teams provides us with the resources and capability to scale the success that we’ve built over the past ten years. As pioneers in the creation of public cloud managed services, the Effectual team has made an impressive impact on the industry. We look forward to working side by side to deliver effective solutions to our customers in the commercial and public sectors.”

Private Equity Perspectives

Effectual’s private equity backers have considerable MSP and IT services experience. For example, Lumerity also owns stakes in Datavail, a database-focused MSP, and  365 Data Centers, a provider of hybrid Infrastructure-as-a-Service and network-dense data centers. Earlier investments spanned TriCore Solutions, an ERP-focused MSP that Rackspace acquired in 2017.

For its part, Catalyst also has investment experience with Datavail, and Internet infrastructure players such as InSite Wireless Group, Latisys, and Xplornet, the firm said.

Both private equity firms are crowing about Effectual’s near- and long-term business prospects. In a prepared statement, Todd Clapp, a partner at Catalyst Investors, said:

Robb Allen and his team have extensive experience securing and modernizing enterprise infrastructure for both commercial and public sector customers,. Their prior success at Datapipe provides the right tools and expertise to become a new leader in delivering public cloud services. We are excited to be part of Effectual’s journey and will seek to make additional investments to accelerate and expand its capabilities.”

Added Matt Kim, managing partner at Lumerity Capital:

“We have a longstanding relationship with Catalyst and are very pleased to collaborate with them again. We share a common view and understanding of the opportunities within public cloud and the types of organizations that can successfully navigate this space. Bringing JHC together with Effectual enhances the combined organization’s ability to deliver secure and comprehensive public cloud solutions that serve commercial, federal, state, and local government markets.”

Private Equity Firms and MSPs: Why Invest?

Dozens of private equity firms have been acquiring MSPs. The deals often include long-term rollups and geographic expansions to gain scale, recurring revenue and margin expansion.

More M&A deals and private equity investments are a safe bet. Indeed, private equity investors are sitting on a record $1.5 trillion in cash, according to new data from Preqin. Yes, that’s trillion — with a T. That is the highest on record and more than double what it was five years ago, CNBC reports. Amid that reality, private equity firms are scrambling to make investments.

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2 Comments

Comments

    Greg Liebowitz:

    Cloud MSPs essentially receive a “management fee” on their clients’ infrastructure without any of the CapEx of managing physical data centers. The more “assets under management” (i.e. client servers moved to the cloud), the greater the margins & cash flow. Precisely the type of business model that the PE guys dream about.

    Joe Panettieri:

    Hi Greg: Thanks for the note. Generally speaking, I agree. But there are some nuances. For instance, variables like HaaS and server/infrastructure ownership can greatly impact cloud MSP valuation.

    Best,
    -jp

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