Mergertech – May 30, 2018

QuadraNet, a multiproduct IT services company, is seeking add-on acquisitions in the sector following a recent investment from VSS, according to CEO Ilan Mishan.

Terms were not mentioned on the VSS deal, but the company typically invests USD 10m to USD 50m in potential targets with USD 5m to USD 25m in EBITDA, said VSS Managing Director Trent Hickman, who acknowledged that the QuadraNet investment fell within that range.

The Los Angeles-based company is aiming at cloud computing, data-center operations and managed IT services firms, Mishan said. It aims at potential targets with revenue between USD 5m and USD 25m.

The business is mainly focused on domestic M&A but could look internationally, said Mishan. It hopes to close its first deal by the year-end.

Founded in 2001, QuadraNet has some 35 employees and has not yet taken outside financing. The business was specifically targeted by VSS to be a platform investment for companies in the space, Hickman said.

QuadraNet offers services related to co-location, internet infrastructure-as-a service (IaaS) and private cloud-based computing. It is also developing a fourth product, a white label IaaS monitoring panel that can be sold as a part of a larger IT service offering, Mishan said.

The company has operations in Los Angeles, Dallas, Miami, Atlanta and Chicago. It also offers other services virtually deployed online through the web through relay points in New York, Amsterdam and other locations.

The company typically serves small and midsized businesses and larger enterprises across industries, as well as institutions in the Los Angeles area. Its private cloud business has a particular concentration in the healthcare sector and has been steadily moving upmarket to serve Fortune 100 clients, Mishan said.

Declining to mention the annual revenue, both Mishan and Hickman said QuadraNet on average has experienced a 17% revenue growth rate in the last couple of years on an organic basis. Going forward, the business is targeting a 40% to 45% revenue growth rate through clients gained through acquisitions and a more focused marketing effort. QuadraNet’s revenue growth has been somewhat modest in the last few years because it mainly acquired clients via word-of-mouth and client references, Mishan noted.

The company mainly collects sales on a contract-recurring-revenue basis, they said.

QuadraNet will use the capital for a dedicated marketing push, as well as for acquisitions, Mishan said.

Hickman declined to elaborate on a preferred exit scenario for QuadraNet, but he said that VSS typically has a three- to four-year window on platform investments, with a typical goal to make four or five acquisitions before considering exit options.

Other VSS investments in the space include cloud computing, web hosting and IaaS company Hostway of Chicago. VSS and other investors put around USD 110m in financing in the company in December 2013. It was subsequently sold to private equity firm Littlejohn for around USD 200m, according to news reports. Hostway provides hosted information technology solutions to at least 500,000 small and midsize businesses, as well as enterprise customers.

QuadraNet’s competitors include SoftLayer, a cloud computing company acquired by IBM [NYSE:IBM] in June 2013 for USD 2bn; and Tallahassee, Florida-based internet service company Velocity Online, Mishan said.

by Thomas Zadvydas