MSP Merger: Coronavirus No Obstacle To Datapath’s Bright Bear Buy

“We had to do everything remotely. There was probably some lag time. Especially since we were setting up our own personnel to work remotely at the same time. There is a difference in video vs. in-person meetings,” says David Darmstandler, CEO and co-founder of Datapath.

A couple of California-based managed service providers didn‘t let the COVID-19 coronavirus pandemic stop an acquisition. Datapath has closed its acquisition of Irvine, Calif.-based Bright Bear Technology Solutions, ending a year-long journey that, because of the pandemic, saw most of the negotiations being done via Zoom meetings and the final contract signed via DocuSign.

The acquisition closed July 1. No dollar value was given for the acquisition.

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The move to acquire Bright Bear started off with a relatively simple plan to grow Datapath‘s geographical reach into southern California while expanding its cloud and security capabilities, said David Darmstandler (pictured), CEO and co-founder of Datapath, a Modesto, Calif.-based MSP with a strong focus on security via its own SOC, or security operations center.

Darmstandler, his partner and Chief Operating Officer James Bates, and Bright Bear President Nathan Phinney started talking about a year ago after a third-party consultant introduced the two companies to each other, Darmstandler told CRN.

“We met, had lunch, the whole dating thing,” he said. ”Talks progressed. We started putting a structure together. But the contracts and LOI (letter of intent) took place when COVID-19 hit. We had to ask if everything still felt right, and then we decided to continue. We felt the current owners were straight-forward.”

In a normal acquisition, the acquirer spends a lot of time in face-to-face meetings with the potential acquiree, including doing due diligence, Darmstandler said.

“This time, we had to do everything remotely,” he said. ”There was probably some lag time. Especially since we were setting up our own personnel to work remotely at the same time. There is a difference in video vs. in-person meetings. Someone may be more bubbly in-person but doesn‘t show it in a video.”

It was tough to not spend a lot of time face-to-face to discuss the deal, said Nathan Phinney, Bright Bear president and now Datapath‘s general manager for Southern California.

“We‘re relational people,” Phinney told CRN. ”We’re in sales. I would have loved to have driven up to meet them. They did spend a week in our office, sequestered with masks and hand sanitizers. We told our team about the deal via a Zoom meeting.”

There was no face-to-face meeting to sign the final documents, Phinney said.

“Everything was signed via DocuSign,” he said. ”The experience was weird. I thought there would be a lot more fanfare and passing the pens around. Instead, it was, ‘click here’ and done. It was safer.”

On the day the final documents was signed, everything was done with a broker on DocuSign, Phinney said.

“He sent the document to me,” he said. ”I sent it to my partner. The broker then sent the document to David and James. I did a lot of refreshing the screen to see if everyone clicked. It was strange. I was sitting in my office refreshing the browser to see if my company was sold. At this point we hadn‘t told our people about the deal. I heard people knocking on the door looking for me. I had to tell them I was doing something else.”

For Datapath, the acquisition brings both an expanded skill set and a big geographical expansion, Darmstandler said.

“We were starting to work in Southern California, but we didn‘t have a base there,” he said. ”And Bright Bear has been developing new cloud solutions, including voice. We are primarily a Microsoft Azure shop, and Bright Bear works primarily with Amazon Web Services. We are now adjusting to each other. Just because you acquire a company doesn’t mean you are better than they are.”

Phinney said Bright Bear had a strong focus in financial services companies, especially with escrow firms, and had its own SOC 2 certification, which he said is unusual for a company of its size.

“We both had an emphasis on security,” he said. ”Datapath had more of a focus in government and education. It made sense to put the two together. We‘re big in some competencies they didn’t focus on before, and vice versa. Datapath is now the fastest-growing MSP in California, and may now be the largest MSP in the state.”

Datapath is still looking to grow via acquisitions, Darmstandler said. Bright Bear was the company‘s second acquisition, but it is looking at others now, primarily in the San Francisco Bay area.

“We want to take over California,” he said. ”We may expand further in the future, including all along the West Coast. And we‘re open to expansion beyond. It just has to be the right companies.”

Datapath also gets one or two serious inquires a week about the possibility of getting acquired, but Darmstandler said he usually responds that he is just having too much fun as it is.

“Getting acquired is not in the cards for us yet,” he said. ”If you have great people, and provide great jobs, that‘s a great situation. We’re really just starting. And most potential acquirers are money plays. They want to acquire a company, squeeze the juice out, and move on. We’re looking to grow, to be a part of the community and play a positive role in peoples’ lives.”

Having the right consultant when looking for a potential acquisition is a major key to the success of an acquisition, Darmstandler said.

“We use a consulting firm to evaluate possible acquisitions,” he said. ”We‘re always looking and talking to prospective companies. It can take one year, two years. We’re not in a rush. And a good consultant makes sure we follow best practices.”