Mergers and Acquisitions

The Rise of Platform MSPs: Inside New Charter Technologies’ Strategic Approach

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For the past few months, ChannelE2E has been exploring the emergence of the platform MSP amid increasing consolidation within the sector. 

These companies have sprung up in recent years, following the promise of recurring revenue and the ongoing demand for adept IT solutions. This has caused what some might call a buying spree within the market in recent years. 

But each of these MSP platforms has its own approach to M&A.

The 20 MSP, for example, brings its member companies into a unified network by updating branding and renaming the entities it acquires. Similarly, Ntiva aligns its acquisitions with its corporate identity through rebranding. On the other hand, Brightworks IT, supported by Cloud Equity Group, allows acquired companies to retain their original names and logos, simply adding the “Brightworks IT” brand. Amid the rapidly evolving landscape of ownership and integration, Evergreen SG takes a different approach by enabling each MSP to keep its brand, team, and operational autonomy, offering a stable, permanent home for these businesses. For its part, Fulcrum IT emphasizes long-term partnerships, strategic alignment, and collaborative innovation.

Adding to this diverse field of platform MSPs is New Charter Technologies, backed by private equity firm Oval Partners and led by CEO Peter Melby. New Charter is an IT services platform built to help managed service providers (MSPs) grow through strategic acquisitions. The company focuses on scaling businesses while maintaining the close relationships and strong cultures that define successful MSPs.

“New Charter is an IT services platform that we built with the idea that many MSPs have built really great companies, but very few have reached a significant scale without some type of merger and acquisition strategy,” Melby explained to ChannelE2E.

The platform aims to offer the best of both worlds: Significant growth and the preservation of close client and employee relationships. As Melby notes, scaling relationship-oriented businesses can be challenging. “Clients want to work with people that they know, the employees want to work in teams where they have a voice,” he said. This dynamic has made it difficult for MSPs to grow organically into large-scale operations, according to Melby.

New Charter addresses this challenge by creating a scalable platform that maintains the core strengths of its acquired companies. “We're approaching $300 million in revenue; we've got 1,200 employees. But we're built with the idea, even after 25-plus acquisitions, that the customers want close relationships, the employees want cultures where they have a voice, and we want to be able to be the most effective in giving the clients and the employees what's most valuable to them,” Melby said.

Over the past four years, New Charter has completed approximately 25 acquisitions. While integrating various aspects of these organizations, New Charter allows them to retain their existing brands in the market. This approach has resulted in record-low turnover and sustained double-digit organic growth each year, even beyond acquisitions, according to Melby.

New Charter’s strategy lies in attracting companies that naturally fit within its model. “Most of the companies come to us because we've focused on creating a destination for the types of organizations that are going to find the most value with New Charter,” he said. By showcasing the reality of life within New Charter, the company ensures mutual alignment with prospective acquisitions. “The biggest thing for us is making sure people are aware of what we're doing, aware of our model, and then making sure that we're picking not just the organizations but also the leaders that we want in this space,” Melby added.

New Charter's mission is to support and enhance the operations of its acquired MSPs, enabling them to achieve new levels of success while maintaining the qualities that originally made them successful, according to Melby.

Cybersecurity Initiatives

Cybersecurity is a cornerstone of New Charter’s operational strategy, according to Melby.

"We have our own advanced security operations team, [which] operates under the brand Cyber74,” he said. “And we do everything from advanced pentesting to security risk assessments, advanced security strategy and management. And we have some SOC resources within that group, we also utilize partner resources for some of the more commoditized SOC aspects."

The security operations center (SOC), operating under the brand Cyber74, provides a range of advanced security services, including penetration testing, security risk assessments and comprehensive security strategy and management. This dual approach, combining internal resources with external partnerships, allows New Charter to maintain high security standards across all its MSPs, Melby explained.

"It's really important for us to have a consistent security strategy," Melby added. This consistency ensures that all MSPs within New Charter adhere to the same high-security standards, which is crucial for protecting clients' data and maintaining trust.

New Charter's approach includes partnerships with various cybersecurity firms to enhance their capabilities. These collaborations allow New Charter to stay ahead of evolving threats and continuously improve their security posture. Future plans involve further investments in cybersecurity to ensure that their MSPs are equipped with the most advanced and effective security solutions available.

Through its dedicated SOC and strategic partnerships, New Charter ensures that its network of MSPs can offer robust security solutions to their clients, reinforcing trust and reliability in their services.

Acquisition Strategy and Criteria

New Charter employs a strategic approach to acquisitions, focusing on companies that align with their operational model and long-term goals. Melby emphasized that they acquire companies that are a natural fit for their model, rather than pursuing every potential acquisition.

The company targets MSPs that have achieved a certain scale, specifically those with $5 million in revenue or $1 million in EBITDA and above. This criterion ensures that New Charter focuses on financially stable and growth-oriented businesses.

A significant aspect of New Charter’s acquisition strategy is the cultural fit of potential companies. "Most of the companies come to us because we've focused on creating a destination for the types of organizations that are going to find the most value with New Charter," Melby said. This focus on cultural alignment helps ensure successful integration without disrupting the core strengths of the acquired companies.

Marketing and showcasing the reality of life within New Charter are crucial for attracting potential acquisitions. "The biggest thing for us is making sure people are aware of what we're doing, aware of our model, and then making sure that we're picking not just the organizations but also the leaders that we want in this space," Melby added.

To support their acquisition strategy, New Charter leverages a network of industry connections and referrals. After completing 25 acquisitions, they have built substantial connections in the market, which helps them identify and engage with potential targets effectively. "We have a lot of connections in the market," Melby noted.

Operational Strategy and Integration

For New Charter, a balanced approach to operational strategy and integration is key, according to Melby, aiming to maintain the entrepreneurial spirit of the acquired companies while standardizing key functions to add value. Melby explained, "We want to leave entrepreneurial decision making close to the employees and close to the customers. But we want to centralize and standardize everything that brings value."

As Melby sees it, this approach ensures that the unique strengths and cultures of the acquired MSPs are preserved. "We integrate for value, not vanity," Melby said. Unlike some companies that change names and identities immediately after acquisition, New Charter focuses on enhancing operations and providing robust support to its MSPs without disrupting their core identity, he explained. This helps retain employees and clients, who are crucial to the success of the business.

Integration at New Charter involves consolidating key functions such as accounting, finance, HR, marketing, and sales lead generation. "We integrate accounting, we integrate finance, HR, we have centralized marketing, we've got centralized sales lead generation," Melby noted. This centralization allows New Charter to leverage economies of scale and provide better resources and support to the acquired MSPs.

A critical part of New Charter's operational strategy is ensuring a consistent security framework across all MSPs. "It's really important for us to have a consistent security strategy," Melby said. This standardization is vital for maintaining high security standards and protecting client data across the network, according to Melby.

The Role of AI

Artificial intelligence (AI) plays a pivotal role in New Charter's strategy to modernize and enhance the services provided by their MSP network. The company has made what Melby calls “significant” investments in AI and automation to drive innovation and operational efficiency.

"We're at that point with AI, where very few people are seeing meaningful return on investment. But that's not what AI is about, right now. It's about exploration, and it's about innovation and making sure that we're the first to find that ROI and to establish that benefit, rather than waiting for our competitors or vendors to do it for us," he said.

New Charter is not solely relying on vendor solutions for AI. Instead, they are developing their own centralized approach and strategy. The company is not limited by vendor solutions and has a dedicated team making incremental advancements in AI, aiming for gradual improvements rather than a single major breakthrough, Melby explained.

This approach allows New Charter to tailor AI and automation technologies specifically to their needs, ensuring that they can deliver the most value to their MSPs and clients, according to Melby.

The company is focused on incremental discoveries and changes, leveraging AI to achieve small, compounding improvements that collectively lead to significant impacts over time. "It's going to be incremental over time. And it's going to be single-digit percentages of impact, things that will all compound into something very meaningful," Melby explained. This strategy emphasizes the importance of starting early with AI investments to reap larger benefits sooner.

By integrating AI into their operations, New Charter aims to simplify complex ecosystems and deliver better results for their clients. Through dedicated teams and strategic investments, New Charter is positioning itself to capitalize on AI advancements, ensuring their network of MSPs remains competitive and capable of delivering cutting-edge solutions.

Due Diligence and Reinvestment

New Charter employs a thorough due diligence process when considering potential acquisitions. Melby acknowledged that the diligence process is extensive but necessary to ensure the right fit. "Due diligence is never fun. You will never learn enough," he noted. "Equally as important to us is validation of the culture and what the engagement with the employees and customers is like, because that's ultimately what we're trying to piggyback on," Melby explained.

The company seeks what Melby calls “best-in-class MSPs” that can benefit from their resources and support. "We don't buy turnarounds, we don't buy fixer-uppers," he said.

Referrals and market connections play a significant role in New Charter's diligence process. "We work with several firms that manage the various aspects of operational, financial, and customer due diligence," Melby mentioned. Additionally, the internal team at New Charter assesses these aspects to ensure alignment with their goals.

A unique aspect of New Charter's acquisition strategy is the reinvestment by the companies they acquire. "All of the companies that we acquire, reinvest in our platform. They reinvest up to 30%, which is very unique for a private equity-backed platform," Melby said. This reinvestment accelerates value creation beyond what the individual companies could achieve on their own. It also aligns the interests of the acquired companies with New Charter's long-term objectives.

The mechanics of the reinvestment are structured to be tax-deferred, providing financial benefits to the sellers. This approach ensures that the sellers remain invested in the success of the combined entity, Melby said.

Overall, New Charter's due diligence and reinvestment strategies are designed to ensure that they acquire high-quality MSPs that align with their culture and goals, while also fostering continued growth and value creation for both the acquired companies and New Charter as a whole.

Acquisition Timeline and Selling Points

The acquisition process at New Charter Technologies is designed to be thorough yet efficient. Melby explained that the due diligence process typically takes around eight weeks. "Due diligence is typically an eight-week process. We've done it faster, we've definitely had diligence where it's a bit more complicated based on structures and all that, but our process typically takes eight weeks," he said. This relatively quick turnaround is possible due to New Charter's experience and streamlined procedures.

New Charter aims to make the acquisition process collaborative rather than adversarial. "We don't send over draft contracts that are one-sided. We want it to be really two parties on the same side of the table, solving problems together, not continued negotiations through the whole due diligence process," Melby noted. 

Melby isn’t just the CEO of the company – he has also been a seller. Before taking the chief executive position, Melby ran his own Denver-based MSP, Greystone Technology, which he sold to New Charter in 2020.

"When I sold my MSP into New Charter, very early in the process, the discussion was, do we sell to an integrated platform and get swallowed up? Do we become a platform and bring others in? Or do we stand alone?" He found that New Charter's model allowed his business to retain its identity while benefiting from the resources and scale of a larger entity.

This commitment to preserving the core values and culture of acquired companies is a key selling point for New Charter. The company aims to provide the support and resources necessary for continued growth without compromising the elements that made the MSPs successful in the first place.

Leadership and Transition

New Charter places a strong emphasis on leadership retention and smooth transitions during the acquisition process. The company’s strategy is to keep the original leaders of the acquired businesses engaged and in positions of influence, according to Melby. 

"No one's ever sold [to New Charter] and left immediately,” he said. “We've had two that have given up their day-to-day positions, a few that have given more significant management responsibility to another individual, but our retention of owners is tremendous.”

Melby attributes this high retention rate to the appealing work environment New Charter provides and the continued ability to add value. 

One key aspect of New Charter's approach is ensuring that the original leaders of the acquired companies remain the primary point of contact for their teams. "Their teams are not looking over them to the corporate team to see who really makes the decisions. They're looking at their original leaders as the continued leaders in the arc," Melby said.

By keeping the leadership of acquired companies involved and maintaining their influence, New Charter ensures that the entrepreneurial spirit and client-focused culture that made these businesses successful are preserved and enhanced. This strategy not only facilitates smoother transitions but also drives continued growth and value creation.

Looking Ahead

New Charter has significantly grown in the managed services provider sector by focusing on strategic acquisitions and maintaining the core values and strengths of the businesses it acquires. Under the leadership of CEO Peter Melby, the company has managed to scale its operations while preserving the close relationships and strong cultures that are crucial to the success of MSPs.

The company’s operational strategy includes standardizing key processes and providing centralized support functions to enhance efficiency and effectiveness. Their emphasis on cybersecurity ensures high security standards and robust protection for client data.

New Charter’s investments in artificial intelligence and automation aim to drive innovation and operational improvements incrementally. This approach helps them stay ahead in the IT services industry.

Their due diligence process and reinvestment strategy focus on acquiring high-quality MSPs that align with their culture and goals. By retaining the leadership of acquired companies and ensuring smooth transitions, New Charter fosters an environment conducive to growth and value creation.

Looking ahead, New Charter plans to continue investing in AI, automation, and cybersecurity to meet the evolving needs of their customers. Future plans involve further strengthening their capabilities and expanding their portfolio of MSPs.

As New Charter Technologies continues to grow, it remains committed to supporting and enhancing the operations of its network, ensuring that each acquisition strengthens their overall capabilities and aligns with their long-term vision. This approach positions New Charter to adapt and thrive in the evolving IT services landscape.