Celerity boss on landing £15m investment and evolution from reseller to MSP

COO Craig Aston tells CRN that the company aims to generate at least 80 per cent of its total profits from services as Celerity looks to make acquisitions to scale its managed services business

Celerity said that it's almost four-year transformation from a reseller to an MSP helped it to land £15m in investment from BGF as its COO laid out its future plans to CRN.

At the end of November, IBM partner Celerity announced that it had secured £15m in investment from BGF to scale out its managed services business.

BGF, which was ranked as the UK channel's third biggest private equity backer in CRN's Private Equity Report, has made previous investments in channel businesses including Roc Technologies, TiG, and Olive.

Acquiring a minority stake in Celerity means that BGF now has a technology services presence in the UK's enterprise space - a piece that was missing in its previous channel investments according to Celerity's COO Craig Aston.

BGF originally approached Celerity in mid-2018, but it was ultimately decided that Celerity was too small to be a worthwhile investment.

But years of growing the business and transforming it into a managed services outfit prompted Celerity to begin a search for an investor in late 2020/early 2021.

Aston said that the firm approached a small number of potential investors, including BGF.

"We did also consider potentially looking at a majority stake rather than a minority stake," said Aston.

"We even considered potentially taking on debt within the business as well, so we could achieve what we wanted to without actually moving away from equity.

"We did quite an extensive process looking and deciding what to do. Once we'd concluded that it was going to be minority investment that we wanted, we didn't really go round and auction, we worked pretty much exclusively with BGF, and entered a period of exclusivity with them in July, because we got on with them."

Aston said that BGF's hands-off approach as a "quiet, patient" investor sat well with Celerity's directors and shareholders.

BGF showed great interest in Celerity's customer base, Aston said, which consists of very large businesses in the finance, public sector, defence, utilities and manufacturing industries.

As with many investors, BGF was also attracted by Celerity's strong annuity-based business which it has grown through shifting from infrastructure resell to managed services.

Although around 65 to 70 per cent of Celerity's revenues still stem from so-called "traditional resale", with the remaining 35 to 30 per cent coming from services, the story is the reverse when it comes to profits. Services now account for around 60 per cent of Celerity's profits, Aston said.

The goal is to increase that figure even further - by around another 20 per cent - by using its investment from BGF to scale out its managed services business.

"The resale of infrastructure world is a difficult world to be in and will get harder and harder as more and more items move to the cloud as part of that hybrid cloud journey," he said. "We certainly believe there'll always be a place for on-premise as part of a hybrid cloud strategy along with private cloud, but it is becoming a smaller part of the market without any question."

The company is currently at a headcount of 60 but is aiming to reach around 80 as part of its growth plans.

Celerity will look to achieve most of its future headcount and services-led growth organically, but acquisitions could play a role in speeding up the process.

Potential acquisitions would include small managed services businesses that serve a niche in the enterprise space.

The road to managed services

The move from resale to services "wasn't easy", Aston said.

"What I learned from it is that you have to take some pain at some point if you want to make this change. But as long as you've got that longer-term plan, the pain is actually worth it, because you can see these annuities come out."

Celerity was lucky that one of its key vendor partners, IBM, began changing a lot of its software agreements to enable its partners to more easily become service providers at around the same time as when it began to change its own business.

"That meant that we could build services around IBM software, and then deliver them to a number of different customers in a really cost-effective way and with the support of IBM. It meant that we were potentially replacing an IBM software product with a service that we were creating, and effectively building that service around either a different IBM product, or even the same product. IBM would stand behind us and would actually help us to do that. So that really was a big part of what we did," he said.

Meanwhile Celerity is now working more closely with new vendors as part of its shift from reseller to MSP. Veeam is a much tighter ally for Celerity now in providing backup as-a-service.

The MSP has maintained its relationships with existing vendors including Microsoft and VMware while Lenovo's x86 server offering often acts as a foot in the door for new and existing customers.

"We've worked with Microsoft and VMware for a long time, but the relationships are changing as we're now a service provider," he said.

"I think some vendors cope better than others when you make that change, and there are certain large vendors who really struggle with that. But there are others - IBM is a good example of one way to work, and Cisco have made it work as well.

"They are learning that partners need to be able to do both - we need to be able to resell and we need to be able to provide a service. Because a lot of the time with the solutions that we're looking to put forward, you don't actually know the delivery model until you get right to the end of the sales cycle."

The rise of the boutique MSP

Aston said that the managed services market remains extremely competitive, especially at the SMB and mid-market level.

He added that large organisations are increasingly looking to small businesses like Celerity to provide niche services, opening up more opportunities for MSPs in the process.

"A number of years ago, I think it was more the very large outsourcers or the large consulting businesses that were winning a lot," he said.

"Whereas I think there are a lot more small businesses who have real niches now, and that's a good thing for us"