CloudCoCo boss on buying IDE Connect for £250k, gunning for £50m revenue and why MSPs shouldn't own assets
MSP CloudCoCo is aiming to reach £50m in revenue over the next two years after the firm brings its acquired IDE Connect business back to profitability.
The Cheshire-based firm reported revenues of £8.1m last month for its financial year ending 31 September, up £100,000 on the previous year.
EBITDA meanwhile ballooned by 185 per cent during the same period to £745,000, while pre-tax losses decreaed to £2m, down from £3m from its fiscal 2020.
It comes after a transformational 12 months for the CloudCoCo business following its acquisitions of value-added reseller Systems Assurance in August 2021 and IDE's loss-making Connect business later that same year.
CloudCoCo acquired IDE Connect for just £250,000 after its parent company, IDE Group, was looking to cut costs of its own. It said that the subsidiary endured a difficult 2020 in which it recorded an adjusted EBITDA loss of £800,000 while revenues fell from £14.6m to £13.1m.
Speaking to CRN, CloudCoCo boss Mark Halpin said the IDE Connect business is now breaking even and even expects it to turn a profit in the second half of 2022.
"I didn't feel the former organisation necessarily knew what they had. I could see the immense amount of talent in the Connect business.
"I think there were risks [in acquiring IDE Connect], but because I've spent the last 20 years in infrastructure, datacentre and cloud, I was very confident that I knew how to do things with those capabilities.
"We did extensive due diligence on every single line item of the business, so I was able to weigh up the risk with the potential that we could unlock which is becoming apparent now."
Halpin said he brought the IDE Connect and CloudCoco management teams together in London at the start of January this year to come up with a plan to right size the business.
These cost saving measures varied from renegotiating supplier contracts, looking at matching costs or instances where the business is carrying customer costs and making it operationally more efficient.
"I don't think the operational management team had the right information shared with them and therefore they were blinded from being able to try and answer the challenges the business had, because they didn't necessarily know a challenge existed," he said.
"We're making very, very significant progress around executing on the decisions we made and locking them down, and now we just have to wait for them to mature on the P&L. When you have that concept of openness you feel this real collective force of a team working together to create a business that we're proud of now."
IDE Connect added around £12m in revenue to CloudCoCo, Halpin said. The business brings with it 600 customers as well as 33 datacentre facilities across the country.
CloudCoCo now serves around 1,000 customers thanks to the IDE Connect acquisition. Halpin said this added scale will allow the business to quickly accelerate towards its £50m revenue goal.
The MSP signed a three-year contract worth £4m with a customer in November at a time when CloudCoCo was just an £8m-revenue business. These long-term contract wins will be the focus to grow the company further.
"We won that piece of new business as an £8m-revenue organisation. People are realising that there's something great going on at CloudCoCo, and we're at maybe £25m now. So if we can sign them at £8m, then we can sign them at £25m."
Despite focusing on long-term contracts, Halpin said that CloudCoCo's resell business, which was bolstered through its acquisition of Systems Assurance, will still play an important role, claiming that winning large managed services contracts can start with "just a cable sale".
"The larger MSPs have forgotten how important that responsiveness is. Large customers sometimes want just five mobile phones or a very small hardware sale, and they can't find an MSP that will answer them and quote them in a timely manner. Sometimes that can be the foot in the door to the relationship that then grows into two or three-year contracts," he said.
Further acquisitions will play a role in adding scale and new capabilities to the CloudCoCo business. Halpin said the market is "rife with potential targets" because of business owners wanting to sell up after struggling through the Covid pandemic.
He also said that many MSPs are laden with old assets that now need refreshing - an expense that many business owners do not have the stomach for.
It's a mistake that Adapt4 had also fallen into before it acquired CloudCoCo in 2019, Halpin said.
"Adept4 was a business that was very typical to a lot of the mid-tier MSPs. They were growing through acquisitions, failing, and not able to transition to what I call MSP 2.0," said Halpin.
"They had bought assets but they couldn't get away from, so they weren't able to give customers the right answer. Adept4 was a business that needed correcting, but it gave my start-up a bigger platform. And we were able to leverage that platform in terms of treating the customer base in a much better way, both from a sales perspective, a capability perspective and a service perspective."
Halpin added that, although CloudCoCo now has 33 datacentres after its IDE Connect acquisition, 32 of those are actually run and owned by larger providers
"Companies of our size shouldn't necessarily own too many assets because the hyperscale providers have got them," he said.
"When MSPs own their own cloud platforms, telephony platforms or datacentres, then they have to push their customer towards using it even though, the majority of the time, it's not the right answer for them."