MSP ITS Acquired By Private Equity Firm Tower Arch Capital

‘A big part of our focus is to find entrepreneurs and founders looking for help to grow their businesses. We’ll make strategic investments, providing capital and support where we can. … We just want to bring more fuel to the fire Tom and his people have started. They have a great engine, and we want to keep them up and running. This is a really attractive industry we want to be involved in for a long time,’ says Aubrey Burnett partner at Tower Arch Capital.

Managed service provider Intelligent Technical Solutions has received major investment from Tower Arch Capital, a private equity investment firm looking to turn ITS into an MSP platform company with a goal of acquiring other MSPs.

With the investment, Tower Arch Capital becomes the new majority owner of Las Vegas-based Intelligent Technical Solutions, said Aubrey Burnett, partner at the Salt Lake City, Utah-based private equity company.

Burnett declined to specify the amount his company invested in ITS, but said ITS’ management team also participated in the investment.

[Related: MSPS AND PRIVATE EQUITY: WHAT MAKES AN MSP STAND OUT FROM THE PACK?]

ITS CEO Tom Andrulis told CRN that his company was formed in 2003 to bring a wide range of managed services to customers, all with a security overlay. Going forward, the MSP platform company will continue be known as Intelligent Technical Solutions, he said.

Prior to the investment from Tower Arch Capital, ITS has made eight other acquisitions, none of which involved financing, Andrulis said. They were done via owner notes, stock mergers, or joint ventures.

ITS also had five other acquisition deals it was preparing to close before Tower Arch Capital made its investment pitch, he said.

“We put those five deals on hold, but have since closed one,” he said. “Now we’re going forward with the other four. All five owners have been graciously patient.”

Andrulis declined to specify which company ITS has just acquired as he is working with the management team at that company to meet with its clients to talk about the acquisition.

“And we’re already talking with other companies,” he said. “We have a solid process in place for mergers and acquisitions. Now we’re ramping up the deals.”

Increased Interest In MSP Platform Companies

Abe Garver, managing director and MSP team leader at Focus Investment Banking, a Vienna, Va.-based midmarket investment bank, said that Tower Arch Capital’s investment in Intelligent Technical Solutions is, by his count, the 100th formation of an MSP platform company.

MSP platform companies are formed when an MSP is acquired by private equity for the purpose of acquiring more smaller MSPs to scale managed services on a regional or nationwide basis.

Driving the formation of MSP platform companies is the attraction of recurring revenue, Garver told CRN.

“Recurring revenue is a huge driver,” he said. “There’s a lot of private equity money coming into the MSP business because the business is super desirable. It has predictable revenue and reasonable profitability, and there is a lot of consolidation.”

Those are key factors in Tower Arch Capital’s investment in ITS, Burnett told CRN.

“We have been interested in the MSP space for about 18 months,” he said. “We’ve been looking at a couple of platform investments. The ITS team is a good group, and as experience with acquiring other MSPs. They’ve invested in their platforms to make them scalable. We feel that, with the resources we have to bear, we can scale that growth even faster.”

While Tower Arch Capital invests in a wide range of areas including consumer electronics and industrial businesses, the MSP business stands out for a number of reasons, including the critical nature of the services provided to SMB customers which make MSPs very “sticky” along with the fact that it is a fast-growing business, Burnett said.

“We’ve found a really good operation in that space, and felt it a really good investment,” he said.

ITS, with the support and resources of Tower Arch Capital, will continue to acquire other MSPs, Burnett said.

“A big part of our focus is to find entrepreneurs and founders looking for help to grow their businesses,” he said. “We’ll make strategic investments, providing capital and support where we can. But Tom will continue to run ITS’ businesses. We just want to bring more fuel to the fire Tom and his people have started. They have a great engine, and we want to keep them up and running. This is a really attractive industry we want to be involved in for a long time.”