Centre Technologies CEO On MSP Consolidation And M&A Strategy

‘I don’t believe that the smaller MSPs are going to be able to survive. Costs are getting too high. The amount of layered security that we have to put in customers’ environments today to make sure they’re protected is high. And the fact that customers have to choose an IT partner with enterprise experience, I think it’s going to erode the smaller MSPs,’ says Centre Technologies CEO Chris Pace.

Building A Local MSP With An Enterprise Touch

The managed service provider business has become a key part of the IT channel as business customers look to managed services as a way to grow their business without a large capital investment.

And MSPs, for their part, find the recurring revenue from managed services to be a way to grow their business over time without a reliance on signing a customer up for the next deal.

However, the MSP business is part of a very fragmented IT services market. IT consultant McKinsey early this month reported that the global IT services market is fragmented, and estimated that 40 percent of the market is controlled by 15 providers.

“Our analysis suggests that the industry will likely see some consolidation because niche players may struggle to scale and large providers may seek ways to broaden and strengthen their capabilities,” McKinsey wrote.

That idea of a fragmented IT services business matches the view that Chris Pace, CEO of Houston-based MSP Centre Technologies.

“I don’t believe that the smaller MSPs are going to be able to survive,” Pace told CRN. “Costs are getting too high. The amount of layered security that we have to put in customers’ environments today to make sure they’re protected is high. And the fact that customers have to choose an IT partner with enterprise experience, I think it’s going to erode the smaller MSPs.”

Centre Technologies, with the help of its investor, Houston-based Main Street Capital, is looking to build an MSP that provides that enterprise touch. The company, which previously acquired a couple of smaller Texas-based MSPs, early this month acquired NetLink Solutions, based in the Tulsa, OK suburb of Broken Arrow.

That does not mean the start of a move to build a national MSP, but instead one to build a strong local MSP with enterprise capabilities, Pace said.

“We’re not looking to spread our wings across the United States,” he said. “We’re looking to really focus in an area, really go deep and wide within the area become the IT partner that small businesses look towards. We want to be the best IT partner in the area. And so in doing that, we want to focus on right now on Texas and Oklahoma.”

Here’s more of CRN’s interview with Pace.

What is Centre Technologies?

Centre is an IT services organization. We are the customer’s IT department. We are unique from other MSPs in that we have the ability to be an extension of customers’ IT departments, delivering various modern IT solutions focused on cloud and security.

Be more specific. What is unique about Centre Technologies?

There are very few large MSPs. Most MSPs are local to their area, and are really focused on delivering personalized service to their customers. But for their customers, it’s the MSP’s tech stack or no tech stack. Centre is unique in that while we can be the customer’s IT department, we can also be flexible from a tech stack and how we’re able to support the customer. So we’re able to be flexible in the various IT solutions we provide to them.

Centre Technologies just acquired another MSP, NetLink. What is NetLink?

NetLink is a local MSP based in Tulsa, Oklahoma, providing IT services to organizations, 95 percent of them are in the Tulsa area. They’re focused on customer experience and customer service, and provide a very enhanced personalized service to the customer. When I say personalized service, they know the customer’s business. They are an extension of their team. They are the customer’s IT department, providing them strategy and really helping them utilize technology to accomplish their goals.

Why the interest in NetLink? Is it a geographical expansion, or do they bring any new services that Centre didn’t have?

So what we’ve done in the past three years since Main Street Capital took it took a minority interest in Centre. We are really focused on becoming the dominant IT partner for small and medium businesses within Texas. We have brick and mortar offices in Houston, Dallas, Austin, and San Antonio. This is our first jump over to the Oklahoma side. And it really matches with our thesis that MSPs need to get bigger because they have to be able to bring enterprise experience to their customers. When customers go out and look for an IT partner, they want personalized service, and yet they can’t choose an IT partner based on personalized service anymore with all the cybercrime they’re having to deal with, with all the different variations of cloud and on-prem they’re having to support. And so Centre’s differentiator is that we bring to our customers personalized service with a local touch, but we also give them an enterprise experience like the large national players out there. We do that through our service delivery design

We’re out there, acquisitive. Our thesis is, MSPs have to get bigger. So we’re out there looking for great services-based organizations that want to join a bigger team and have the ability to bring that enterprise experience to their customers.

So this is your first acquisition outside of Texas. How many acquisitions have you done in Texas?

Three. We did two last year.

Is acquisition a big part of your growth strategy going forward?

Yep. So again, I don’t believe that the smaller MSPs are going to be able to survive. Costs are getting too high. The amount of layered security that we have to put in customers’ environments today to make sure they’re protected is high. And the fact that customers have to choose an IT partner with enterprise experience, I think it’s going to erode the smaller MSPs. And so that’s where our strategy is. There are great local MSPs that are providing that personalized service and local touch. And through our service delivery design, part of our strategy is acquire them, but then combine them within Centre to create one team. We add our enterprise experience, our additional skills, our additional scale, to the existing team, so that we’re giving customers the combination of personalized service and local touch in an enterprise experience. We think that sets us apart from our competition.

For future expansion, will you be focusing more outside of Texas?

We think there’s a ton of small businesses and Texas and Oklahoma. And we’re not looking to spread our wings across the United States. We’re looking to really focus in an area, really go deep and wide within the area, become the IT partner that small businesses look towards. We want to be the best IT partner in the area. And so in doing that, we want to focus on right now on Texas and Oklahoma.

How much did you pay for NetLink?

Yeah, I’d rather not say.

Is NetLink’s former top management staying with Centre?

They are.

So why did NetLink want to sell?

Same thesis. It’s getting harder and harder to operate, especially when you when you look at it from employee standpoint. When you have 20 employees, and you lose one or two of them? In today’s environment, smaller are not necessarily able to provide all those opportunities to their employees. And it’s harder to find talent, as well as provide all the different skills that they’re having to be able to train on. So they don’t necessarily have that critical mass. So a lot of the smaller MSPs have the same philosophy, that a smaller MSP is not going to survive in today’s time. It’s a very, very fragmented market, but I think in the next five years, you’re going to see two handfuls of providers across the nation. And it’s going to be less and less fragmented.

I had the same conversation with Microsoft at a Sherweb kick off. Microsoft said, ‘Hey, we want to add more resellers. You’re not going to add more resellers. You need to invest into the ones that you have, and the ones that are getting out there from a consolidation perspective, and that’s where your focus needs to be. And it’s too hard to start in this business. You can either be a ‘chuck in a truck,’ or you can be a dominant regional player or a national player. There are no more local players that have the ability to survive.

Did you finance the acquisition from cash on hand? Or did you have to go to your investor company?

Main Street Capital is our capital partner providing capital to be able to fund this.

Is Main Street Capital’s strategy to make Centre Technologies a platform MSP?

So Main Street Capital invested in Centre in 2019, and looked at us as a platform. Mainstreet is a little bit unique in that they’re a publicly traded. They are not a fund that has to expire. So there’s no exit timetable for Centre. They believe in the management team. They believe in our vision. They believe in the thesis that we have from a market standpoint, and they’re partnering with us to help us accomplish our goals.

Do you look at possible acquisitions to increase your expertise in certain areas, or are acquisitions for Centre more focused on geographical expansion?

There are three things that that we look at, and typically an acquisition has to be able to check a couple of the boxes. First, it’s got to make sense from a geographic standpoint, where we want to go. Again, we don’t want to spread our wings too far. We want to be able to focus in the area and really become that one dominant IT partner in that area. Second, it’s got to have the right people with the right mindset from a customer service standpoint, focused on very strong relationships with their clients. And third, the acquisition brings additional skill sets that Centre does not have today, or where Centre might not have from a critical mass standpoint, to enable us to provide better solutions to our existing clients and to our acquired clients as well. NetLink checked the boxes from a geography standpoint and being a great services-based organization.

The MSP business is fragmented, but there’s heavy consolidation happening. There are four or five players that are playing right now from a consolidation standpoint. All of our competitors are kind of going nationwide, where Centre is focusing on a specific area. It’s our unique service delivery model that enables us to continue to deliver the personalized service of what we acquired, but also bring to them the enterprise experiences of a national company. That’s setting us apart.

Any other acquisitions keyed up at this point?

Yep. Hopefully two more before the end of the year. We’ve been working on them, and we’d like to stack them all up at once. It’s also important that we fully integrate these businesses so that we truly are delivering one team to all the customers. I’m getting out and meeting every single one of the NetLink customers, and I can’t tell you how many of them say they have offices in Austin and Dallas. So now being able to provide Centre’s local touch to their satellite offices in Dallas and Austin is bringing immediate benefit. So we’re fully integrating these businesses. These are not separate standalone businesses for us. It’s one set of tools, one tech stack, that we’re providing.