Supporting the Backbone of the Digital Revolution

Senior Investment Director Andy Strickland looks at value enhancement opportunities in the IT managed services sector.

The pandemic dramatically accelerated the pace of change in how and where people work in nearly every organisation around the world. The first lockdown in March 2020 forced us all into a sudden and rapid shift to home working, causing untold disruption to our working and family lives.

As millions of people swapped the office for back bedrooms and kitchen tables, enormous pressure was piled upon companies’ and public sector organisations’ IT departments to ensure colleagues could access work networks and securely maintain business operations.

 

A perfect storm?

More than two years on from the height of the pandemic, and with scant appetite from many previously office-based employees for a return to the old 9-5 routine five days a week, those charged with implementing the requisite changes to IT strategy and enhanced security requirements were facing challenges they’d never experienced previously.

In addition, with the digital revolution meaning that technology now underpins the majority of companies’ growth strategies, and with the increasing use of data and AI in core business operations, there’s probably never been a more demanding time to be the person responsible for IT strategy a medium-sized or large enterprise, whether that’s the CISO, CTOor the FD doing it off the side of their desk. .

Significant investment has therefore had to be made to IT systems to meet the challenges of greater complexity and of course to ensure systems are safe from ever-increasing and more sophisticated cyber threats.

As a long-standing investor in the sector, we’ve worked closely with our three portfolio companies, Cyberfort, Acora and FourNet, to help them identify and grasp the opportunities that have emerged over the last two years to build their scale and capabilities.

Just recently we have supported both Acora and Fournet with strategic acquisitions that have strengthened their capacity in the cyber space.

In the fourth bolt-on deal since our investment in 2020,  Acora acquired cybersecurity provider Secrutiny, while FourNet, which we backed in June 2021, has acquired IT infrastructure and secure networking company C>Ways.

Cyberfort, which we backed in 2017, has made a number of value-enhancing acquisitions throughout its journey to becoming a market-leading player in the industry.

David Rabson – CEO of Acora, says: From the outset of our partnership with Palatine, we have targeted growing our cyber capability via acquisition. Cyber security is at the forefront of all our client’s minds. However, the cybersecurity market is complex and cluttered. It was paramount when bolstering our cyber security skill set that we partnered with a business that was both mature in their proposition and in terms of their people, processes, and technology that aligns perfectly with our own. We’d been working closely with Secrutiny for some time, and bringing the businesses together now creates exciting opportunities which will benefit all our customers and stakeholders.

 

Execution, execution execution

The fundamental principles of strategic acquisitions, or ‘buy and build’ are the same regardless of industry, but have particular resonance in the managed services sector.

As a rule, we find that a fast-paced and fragmented market is usually ripe for consolidation, which means there is a ready supply of target businesses with the right attributes to diversify and enhance our portfolio business.

Successful integration is where acquisitive growth strategies stand or fall. Buying new businesses and continuing to operate them as separate entities is not a part of our value creation strategy.

Over the last decade, Palatine has completed over 180 strategic buy and build bolt-ons for our portfolio companies. Successfully implemented, this tactic can be one of the most effective approaches to sustainable value creation. It’s one that we believe is essential in helping our managed services portfolio grow their scale and capabilities in a dynamic sector that provides the backbone of the digital economy.