CEO Bob Cagnazzi On The CD&R Deal, AI And Presidio’s ‘Special Sauce’

“(CD&R is) one of the largest private equity firms in the world and one of the most successful in terms of returns,” said Presidio CEO Bob Cagnazzi. “They are really smart, detailed and analytical.”

Presidio CEO Bob Cagnazzi said the acquisition of the $6 billion solution provider powerhouse by private equity behemoth Clayton, Dubilier & Rice (CD&R) is going to fuel further acquisitions and lead to additional services offerings.

“There is a lot of dry power there for us to accelerate our growth, making the right kind of acquisitions that will provide advanced services, greater geographic coverage or provide even more scale from a people standpoint,” said Cagnazzi. “We hope to be extremely active growing the business organically and inorganically through acquisitions like we have done in the past. We think we can move a lot faster with a lot more dry power than we have had in the past.”

Cagnazzi’s comments came after CD&R – which has $57 billion in assets under management - said it was acquiring a “majority ownership position” in Presidio from BC Partners.

As part of the deal, BC Partners will retain a minority stake in the business.

Terms of the sale -- which is expected to close in the second quarter -- were not disclosed.

Cagnazzi said BC Partners’ decision to retain a minority position in the company is a “great testament” to the strength of the Presidio business. “They could have sold the whole thing but they see the upside in what we have built,” he said. “They have been a great partner for us.”

Under BC Partners’ ownership, Presidio aggressively built out its cloud services business – which now stands at $1.25 billion – with what were at the time non accretive acquisitions including Coda Global – a cloud consulting specialist in 2020. “Those deals have been wildly accretive to the business,” said Cagnazzi.

As for CD&R, Cagnazzi said he is excited about partnering with the private equity powerhouse- which has consistently delivered high returns in the intensely competitive private equity market. “They are one of the largest private equity firms in the world and one of the most successful in terms of returns,” he said. “They are really smart, detailed and analytical.” Here is an edited excerpt of the conversation.

What does it mean that BC Partners will continue to retain a stake in Presidio even with the acquisition by CD&R?

It really is a great testament to the business that they wanted to roll it over and stay involved. They could have sold the whole thing but they see the upside in what we have built. They have been a great partner for us. We were able to do some things from an investment and acquisitions standpoint with BC that we really wouldn’t have been able to really do when we were public. Some of the deals that we did around cloud like Coda and Cloudix. Those weren’t accretive out of the gate. They didn’t look accretive on paper. But they have been wildly accretive for the business. It is a little hard to do non accretive deals in a public environment. Those have been critical to us. We have now got a $1.25 billion cloud services business.

How significant a part of the business is that cloud services business today?

That cloud business has grown over the last six years. The investments we made in acquisitions like Coda and CloudiX have really built out our our professional services and managed services suites.

We are doing some really innovative things on the digital side for clients with cloud native application development, machine learning, AI projects and a host of other things. That has been a tremendous growth engine for the business. Also the managed services that we wrap around traditional infrastructure has been a good growth engine for the business too.

The traditional side of the business – the core fundamental foundational infrastructure we have always done- has grown nicely over the last two years as well.

As we all know right now there is a little softness in hardware resell. But our software business has really accelerated. The innovative services that our professional and managed services teams provide around foundational infrastructure are really helpful for all clients moving to a multi-cloud environment.

Our special sauce, if you will, is we built most of these infrastructures over many years. We know what customers have in place. We know the challenges of moving it. We know the politics, the economics, the technology issues around it.

At the same time we are a huge cloud business with really deep expertise. We have 1,000 developers in India who replatforming applications, doing cloud native applications, AI, analytics and machine learning projects.

We understand what the new world looks like. We understand what a multi-cloud environment looks like and how to architect things whether it is AWS, Azure or GCP (Google Cloud Platform). So when we go and sit down with a client a lot of the consultancies we compete with are born in the cloud and all they know is public cloud.

We know it is going to be a multi-cloud environment and you are going to have some stuff that is probably going to be on prem or in a data center for a long time for a lot of various reasons. So it is all about how do you create the most efficient, effective and economical high performance, secure environment. We understand that. That has been the real driver behind our growth. Clients look to us as their trusted advisor because we really understand the environment they are in and the complexity around that. And we really understand where they want to go, So who better to help create that road map and execute it.

How important are the big cloud investments that you have made?

That is the piece you need to have. I don’t know that a lot of the folks who looked like us through the years have made those material investments. But we have and it has become a big business for us, And it’s an exciting business! We just did a press event with the NHL on two projects that are extremely innovative and really exciting. And we are doing that with hundreds of clients.

You have headed up Presidio for the last 12 years. How big a game changer is this deal?

CD&R is one of the largest private equity firms in the world and one of the most successful in terms of returns. If you look at their consistent returns they are pretty much better than any other PE firm out there. They are really smart, really detailed, really analytical. The current fund we are part of is a $26 billion fund.

There is a lot of dry power there for us to accelerate our growth, making the right kind of acquisitions that will provide advanced services, greater geographic coverage or provide even more scale from a people standpoint. We hope to be extremely active growing the business organically and inorganically through acquisitions like we have done in the past. We think we can move a lot faster with a lot more dry power than we have had in the past.

We hope to be extremely active growing the business organically and inorganically through acquisitions like we have done in the past. We think we can move a lot faster with a lot more dry power than we have had in the past.

We recently beefed up our corporate development team. We brought in a gentleman named Yuri Brodsky. His entire career has been in investment banking. He was at one of the premier investment banking firms LionTree.That is a firm that has put together mega-media deals. Yuri has been over there for a long period of time.

We brought Yuri over to head that group for us because we wanted to start moving a lot faster and now we’re going to be able to do that. It’s exciting!

When you look at AI, how big an opportunity is there for Presidio going forward?

It’s huge. We see tremendous opportunity with our partners like Nvidia to help customers go on that journey whether it is building their own (AI) instances or providing access to what is publically available. Helping our clients architect those AI solutions is going to be a huge growth driver. It is also going to be a huge growth driver for the hardware piece of the business too. That’s going to be exciting. This is a really good place to be right now. Our industry has a lot of opportunities. There is going to be a lot of spend for clients to implement these technologies and get the amazing benefits you get from them whether it is cloud, multi-cloud, AI, machine learning or any of these new emerging technologies. There is a ton of business value in these technologies and customers are going to spend to get it.

What do you see in terms of the scale necessary to compete today and do you have an advantage there given your size and the CD&R investment?

The way that technology has evolved certainly over the last dozen years or so there has been a convergence across what were traditional technology silohs and there has been more inter-connectivity in the projects that we do. If we did a networking project 10 years ago it was solely a network project- pretty much single threaded around the network.

That has evolved with security becoming a big piece of every project. And then data center has become a bigger piece. If you are doing a network project you are in the data center. There are implications for how you design things, how you do things and optimize them. So now if you ‘re doing a network job it is also a data center job. It is also a cybersecurity job and it is also a unified communications job or a mobility job. You see all these technologies converging.

I have been in the industry for a long time so I look at it from like an OSI (Open Systems Interconnection with seven layers) model perspective. The way the industry used to be we would all play primarily at the physical layer, the network layer and the data layer. And then you had the application layer above that. We knew that was where we had to start playing. When you start moving folks to the cloud it is all about applications and services – how can we be relevant.

We were able to make those investments through acquisitions and organically to span across multiple technology silohs, up into the cloud, fully secured across the entire platform with lifecycle services, both professional and managed, to help support clients from cradle to grave. I think that is what clients are looking to consume now. They are not going to buy just a network project when they are dealing with so many other implications even in a network project.

How important is scale in the solution provider business today?

I think scale has become important in our industry. You have to be large enough to be able to invest across multiple technology areas and then to be in the services business you have to be a certain size to do that. That is where the VAR landscape has been changing and that is why I think you are going to see continued consolidation. We’re not the only big guys around. There are a number of companies owned by private equity now that are growing through acquisition.

I think really good regional, local, and even some national VARs are going to look to be acquired. Many of those companies are owner entrepreneurs. I did that a few times in my career. I loved doing it. But you get to a point where you look at what you created in the business and ask - what’s the next step. There are some incredible local and regional businesses out there with some great leaders. But if they want to remain relevant with their clients they have to start making investments in all these other areas. That becomes a bit of risk. So they have 99 percent of their net worth tied up in the business and now they have to take a big swing and build a cloud, cyber or AI practice.

A lot of smart folks look at it and realize they can partner with someone like Presidio, take some chips off the table and roll some equity. They realize their sales team will have all these other solutions to sell, remaining really, really relevant with clients. And by the way Presidio is going to have a really interesting role for them to continue to help them grow the business and be part of a bigger landscape.

That is what we have seen with deals that we have done. We see a 25 to 30 percent jump in revenue the first year we own any company just because of things they can sell that they weren’t able to sell before. That is how the landscape is changing. It is becoming really, really hard to be a local or regional player, making all the investments across all the technology and services areas you need to in order to remain relevant to your clients.

Any specific areas you will invest in now that you have the investment from CD&R?

We’re going to continue to double down on cloud, AI and professional and managed services. We don’t think the core foundational world is dead at all. We will continue to make investments around the great partners we have in the core foundational network and data center. Those are going to be opportunities that are certainly going to drive AI solutions for our clients.