Selection Services eyes £100m sales under new owner

Newly acquired MSP set for expansion, new CEO Andy Ross tells CRN

Serial channel investment house MXC Capital has bagged a 25 per cent stake in managed service provider (MSP) Selection Services, as it looks to create a £100m buy-and-build mid-market player.

MXC's move is part of Castle Street Investments' (CSI) £34.8m reverse takeover of Selection. To fund the acquisition, CSI, which was previously a dating website but sold its assets to become an investment vehicle, announced the conditional placing of shares to raise £30m. As part of this placing, MXC announced an investment of £12.9m worth of equity, which equates to roughly 25 per cent of the shares of CSI.

Selection is a private equity-owned MSP focused on the mid-market with revenues of £34.5m for the year ending June 2015. As part of the deal, MXC partner Andy Ross is becoming CSI's new CEO, with Selection's MD Grahame Harrington due to leave the firm following the deal's completion.

Ross told CRN he has been charged with building up Selection through acquisitions.

"What you typically find in the mid-market is that the CIO deals with a number of different suppliers," he said. "There is no one supplier who can deliver everything they need. In the enterprise space, a lot of the larger providers have their own network, datacentres and their own people, but we are going to replicate that in the mid-market."

He said that while Selection has a good base as an MSP, it still relies on third parties, such as Telicity, for datacentre hosting facilities and that restricts it over pricing and is not "the most efficient way of doing things".

"So our plan is to take a managed services platform - in this case we started with Selection - and deliver around that with our own network and datacentre assets," he said. "So over time we can deliver the full range of services and technology our clients need, but do it on our own assets base. Therefore we have control over the assets and the pricing and that will make us more competitive in the market."

In order to provide its own autonomous services, Ross said there will be acquisitions, with the first "likely" to come in 2016. A statement released by CSI said the targets will be "assets offering datacentre infrastructure, network connectivity and managed services".

He said he is hoping to transform Selection from a £35m-revenue firm to a £100m-player in the next three years through these acquisitions.

Following these deals, Ross said it's "likely" that the Selection brand will be changed once other firms are integrated into it. But he said that besides the departing MD, Harrington, and CFO, Mark Woodall, there will be no other changes to personnel at the MSP.

A lot of players similar to Selection are constrained by their private equity owners who don't provide them with enough capital to expand, Ross added. But he said the MXC and CSI takeover will provide Selection with the financial backing it needs to grow rapidly.

This investment by MXC is not the first buy-and-build MSP venture it has undertaken, with it also investing in Pinnacle and Redcentric.

But Ross said he is "confident that there is very little overlap between" these MSPs, as Redcentric is focused on the large end of the market and Pinnacle is focused on the small end, with Selection in the middle.

Industry analyst Megabuyte said Selection still has a long way to go to provide a full offering, but it is in the right hands now.

"Under [private equity firm] Palatine's watch, Selection had done much of the groundwork in making the transition to a cloud services provider," the analyst said. "On top of its core IT managed services offering, it has acquired cloud services and business comms to round out the service.

"However, we believe that work still needs to be done to pull all those strands together into a coherent customer offering. This work can now be completed under the new management team, and potentially within the scope of a larger group. And on that note, the fact that CSI has structured the deal so it still has plenty of fire power on its balance sheet suggests that further acquisitions may not be too far behind."