Mergers and Acquisitions, Mergers and Acquisitions, MSP, Vertical markets

After the MSP Merger: Culture Trumps Everything

Jack Mortell
Jack Mortell
Tom Telesca
Morris Stemp

StratX IT Solutions -- formed when two New York-area IT service providers merged in September 2015 -- certainly has business and IT plans for growth, branding, automation and more. But perhaps the most important focus involves corporate culture.

To understand where StratX IT is heading, it's important to understand the deal that created this company.

  • On one side of the negotiating table was Professional Data Systems -- a 37-person company founded in 1997 and owned by CEO Thomas Telesca and President John ("Jack") Mortell.
  • On the other side of the table was Stemp Systems, a 25-person company launched in 1986 by CEO Morris Stemp.

The two New York-area companies ran into each other for several years, especially in the healthcare market. Both companies worked closely with SRSsoft, an electronic healthcare records (EHR) company. PDS focused purely on the medical industry, while Stemp addressed medical and other verticals. Both businesses were Inc. 5000 members -- growing quickly, but in different ways. Ahead of the merger, Stemp had about 50 customers while PDS had about 250 (about 65 of those PDS customers are extremely serious about highly reliable systems).

Generally speaking, Stemp's business was a bit further along in terms of Operational Maturity Level -- a Service Leadership Inc. model that tracks how high-performing service providers optimize their businesses. And Stemp charged higher fees for its services.

M&A Discussions

Each business was aware of the other company's success. Based on that mutual respect, Stemp and PDS quietly held merger discussions a full nine months before the deal actually became official. "We really got to know each other," recalls Morris Stemp. "We wanted to really discuss any potential conflicts and challenges ahead of the deal -- and then hit the ground running as a single voice once we combined the companies."

That deal became official in September 2015, when Stemp and PDS combined to form StratX IT Solutions. Thomas Telesca, John ("Jack") Mortell and Morris Stemp each became one-third partners in the new business.

Instead of hyping the deal to employees, the executive team spoke openly about the potential upsides and challenges. "One of the most important things is managing expectations," says Stemp. "We never told the staff that this would be a 'shoe in' -- an easy success. We of course planned to work through issues."

It's All About the Culture

So what was the biggest issue that popped up? The answer involves culture, according to Stemp and Laura Nowatka Mortell, head of marketing for the combined company and a PDS veteran.

ChannelE2E recently visited StratX IT to meet the company first-hand. We toured a Long Island City location with Stemp, and interviewed both Stemp andLaura Nowatka Mortell (via phone) for more than an hour. Both are proud of the newly branded company -- and upbeat about the direction. But they didn't paint a perfect picture that glamorizes M&A.

Instead, they offered a real-world reality check. Business is good and some real synergies have emerged across the company locations (mainly Long Island City and White Plains, N.Y.). Plus, a standardized toolset (ConnectWise, LabTech, Quosal) has helped the company to increasingly automate operations.

After the Sept. 2015 merger, the company rolled out an org chart but then rethought that move. Instead of focusing too heavily on who reports to whom, the company has been focusing on trust -- how to best help employees build relationships with one another across the company.

StratX IT leverages TinyPulse, an online polling and survey system that allows the company to measure employee morale -- quickly and anonymously. A key learning: In late 2015, the teams potentially focused a bit too much the mechanics of the deal (such as integrating ConnectWise and LabTech across the company's locations) and not enough on the culture. "Frankly, the culture -- the mood -- dropped a bit," says Stemp. "And culture trumps everything."

Just to be clear: Culture didn't plummet. There wasn't a mass revolt. But according to the data I saw, I'd say culture went from good/very good to reasonably good. The StratX IT leadership team recognized the culture challenge around January and took steps to address it.

Among the recent steps: Cross-pollination -- which allow employees who came from the PDS side of the house to support customers that were on the Stemp side of the house, and vice-versa. Also, employees in the White Plains office (North of New York City) visit the Long Island office (east of New York City) and vice versa. "That is allowing us to build trust and confidence between employees," says Stemp. And gradually there is no 'other' team -- instead it's one StratX IT team.

At the same time, StratX IT has focused heavily on its brand. Marketing leader Laura Nowatka Mortell drove the effort to design and develop a new logo, tagline and overall image for the company. That effort included continued feedback from the executive team, plus an outside design firm.

Start of Something Bigger

StratX IT expects to focus heavily on culture this year. And somewhere down the road, the company will consider making more acquisitions.

"We want to learn the culture lessons now," says Stemp. "I don't anticipate any merger being perfectly smooth because you're dealing with people -- and each person is a true individual. If I could offer advice to those who are considering M&A, I'd say focus on culture from day one and never let that ball drop. You need to help your team members build connections between each other. That, in turn, will build trust between people."

That's the story so far. Next up: ChannelE2E hopes to visit StratX IT's White Plains offices in the weeks ahead -- meeting with fellow StratX IT owners Thomas Telesca and John ("Jack") Mortell, Marketing Leader Laura Nowatka Mortell, and other team members.

In the meantime, remember Stemp's words: Culture trumps everything -- especially when it comes to effective M&A.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.