‘We screened about 100 targets’ - Softcat CEO on why GDT cleared its M&A bar

Graham Charlton tells CRN about Softcat’s latest acquisition, how it took a five-year US search and where the VAR could strike next

Softcat screened around 100 potential acquisition targets over five or six years before settling on GDT as the platform for its long-planned expansion into the US.

The first snapped up US-based GDT in a $1.05bn (£785m) “enterprise value” deal to scale its presence in North America and India.

CEO Graham Charlton tells CRN the US solutions provider was the only business Softcat encountered during its multi-year search that combined the culture, capabilities and scale required to clear the VAR’s M&A threshold.

“It was the right fit because it was the only thing that we’ve seen in five or six years of looking that had that combination of capability and culture,” he says.

“The capability, the scale, the culture, the combination of factors that we were looking for was overwhelmingly compelling, and we hadn’t seen that mix in any of the probably about 100 targets that we’d screened over five or six years.”

The deal comes barely a year after Softcat took over data specialist Oakland, its first acquisition in around three decades.

Despite the sudden acceleration in dealmaking, Charlton says the VAR’s stance on M&A has not fundamentally changed.

The organisation's strategy has centred around two potential avenues: capability bolt-ons, as demonstrated by Oakland, and geographic expansion to better support customers internationally.

“The US was always the focus for that,” Charlton says.

“What changed was we found a target that cleared a very high bar that we’d always set around culture, capability, ambition, potential and having an important set of capability in the right space that we could build out and broaden from.

“Our stance on M&A hasn’t changed. It’s finding the right target that’s triggered this.”

Softcat ranks number one on CRN's Top VARs list.

Why GDT stood out

GDT brings around 850 employees into the group, with approximately 600 based in the US and another 250 operating from an integrated service centre in Bangalore.

The company also has just under 700 customers.

Charlton says GDT has significant scale on the east side of the US while retaining the ability to operate coast to coast.

But its Indian operation emerged as another major attraction during Softcat’s search.

“The talent market for technology in Bangalore is really exciting,” he says.

“What they’ve built over five years, an integrated service centre in Bangalore that was deployed to work with the US teams in delivering services to their customers. That’s something now that we can invest in and use as a more global platform.”

Charlton says the operation proved so compelling that Softcat realised it would eventually have needed to develop something similar even without the GDT deal.

“Once we’d seen it, we realised that even if we don’t do this deal, we Softcat, to reach our potential, would have to create something like that eventually anyway.”

Softcat was also already familiar with the business before entering the acquisition process.

Charlton says he first met GDT CEO Shawn O’Grady around four years ago and that Softcat worked closely with the company over the six or seven months leading up to the deal.

GDT to retain autonomy

Despite the scale of the buyout, Softcat does not intend to fully integrate GDT into its existing operating structure.

Instead, Charlton says the two businesses will gradually establish what he calls a “federated operating model.”

“It will retain a lot of autonomy,” explains the CEO.

“We will create over time what we’re calling a federated operating model, which will mean that both Softcat and GDT will remain locally led, but they’ll be able to leverage global shared services where it creates value.”

The model will allow their respective sales teams to remain locally led while supporting each other’s customers across different markets.

Softcat has already built international fulfilment capabilities, including branches in Hong Kong, Singapore and the Philippines, while GDT gives it a substantially larger team on the ground in the US and its new operation in India.

“Joining up the sales functions so that they can support each other with their customers in different jurisdictions will be a really important part of it too,” Charlton says.

But the CEO draws a clear line around how far the integration will go.

“What we won’t ever do is kind of fully integrate the two businesses,” he says.

GDT’s leadership, management and operating structures will instead be maintained, with additional layers of collaboration created across the group.

“The combined entity is able to operate as a unit when it makes sense.”

Oakland provides integration blueprint

Softcat will draw on its experience with Oakland as it brings GDT into the group.

Charlton says the model used for the data specialist is closely aligned with what Softcat now intends to do with its latest acquisition.

“We were buying into their leadership team and broader business structure as well as the value they could add to Softcat,” he notes.

“The way that Oakland has been integrated in Softcat, the GDT collaboration will follow a very similar method, and that’s worked very well for us over the past two years.”

Oakland, which was purchased in April last year, has reportedly retained its identity while Softcat has increasingly linked its operations with the wider group and directed customer opportunities towards the business.

What could Softcat buy next?

GDT may have completed a major piece of Softcat’s geographic expansion plans but Charlton leaves the door open to further M&A.

The firm's two acquisition avenues remain unchanged: geographic expansion and capability bolt-ons.

GDT gives Softcat a significant base from which to grow in the US, shifting the balance towards capabilities when considering future targets.

“We’ve now got a big base to build around in the US, and so the much more likely way that we would find a compelling opportunity is around capability bolt-ons,” Charlton says.

Softcat intends to broaden GDT’s offering primarily through organic investment but could turn to M&A if it identifies an opportunity to accelerate that process.

“We do want to broaden the offering of GDT over time,” he says.

“We’ll primarily approach that organically, but if we see a need and an opportunity to do that faster through M&A, then we’ve got the firepower to act as well.”