New Charter CEO On 29th MSP Acquisition: ‘Significant Benefits To Scale’

‘The client experience that ProTech delivers is something that we knew we needed to elevate the DNA of New Charter,’ says Peter Melby, CEO of New Charter Technologies.

New Charter Technologies was founded in 2019 by private equity firm Oval Partners as a platform MSP, which is a company that investors use to acquire multiple smaller MSPs to combine them into a larger company better able to scale to meet the needs of clients.

Since its founding, Denver-based New Charter Technologies has made 29 acquisitions, the latest of which, ProTech IT, was closed this month. Financial terms of the deal were not disclosed.

For New Charter Technologies, or NCT for short, the deal brings an expanded geographical presence and a profitable client base. More importantly, said NCT CEO Peter Melby, Melville, N.Y.-based ProTech IT brings a customer-forward organization that he expects will have a big impact on the company’s entire community of MSPs.

“Because we acquired very quickly over the past five years, we’ve reached a critical mass where we have the right volume,” Melby (pictured) told CRN. “Now we need to make sure that we're adding in strategic ways. What [Managing Partner] Johnson [Abraham] has built at ProTech is one of the most customer-forward organizations I've ever seen, and we saw that the first time we talked to Johnson and team in terms of how they care for their customers. We saw that in talking to their customers through the process. … The client experience that ProTech delivers is something that we knew we needed to elevate the DNA of New Charter.”

Abraham told CRN that for his company, being acquired by NCT means it can scale far beyond anything it could have done on its own.

“New Charter gives me a platform to scale out with the operational support that I will get,” Abraham said. “Because there’s a CFO now, there's a controller, there’s a PR team, there’s a recruiting team, there's a marketing team. If I were to hire all of these resources individually, it’s going to cost me an arm and a leg. So New Charter was the perfect solution.”

Furthermore, ProTech IT gets enhanced services and solutions it previously couldn’t take advantage of, Abraham said.

“For example, we don't work with Sage,” he said. “We don’t do any application development. We don't do a lot of things, but New Charter does. The New Charter platform takes care of all these different things. So I figured if I partner with New Charter, I can take advantage of all these solutions and add services for my clients so I don’t have to go look for many different partners and companies and all that stuff.”

There’s a lot going on with New Charter Technologies and with platform MSPs in general. Read more of CRN’s conversation with Melby, which has been lightly edited for clarity.

How do you describe New Charter Technologies?

New Charter Technologies is an MSP platform focused on delivering the best of both worlds for our clients: a local community-driven personalized IT service with the backing of a centralized platform. We've now acquired 29 best-in-class MSPs since the latter half of 2019, including ProTech IT. Our focus is on acquiring best-in-class MSPs and making them better through our centralized platform and our focus on clients and employees, even through the investment cycle. One of the things wve seen in our industry is that there are significant benefits to scale, but most of those benefits haven't played out well for the employees and the clients of the businesses being acquired. Our model is focused on a different value chain where we understand that what we build is only as good as the value that it increases for our customers, and so much of that is in how we treat and engage with our employees. The client and employee retention rates after partnership and acquisition are for us the things we're most proud of.

Is NCT a private equity-backed company?

Yes, we are a private equity-backed company. Our sponsor is Oval Partners in Palo Alto, California. We enjoy strong alignment with our private equity group in the sense that they understand that this is a people business and that their investment value enhances our ability to bring value to our employees and our clients.

Does NCT itself provide managed services directly to end-user customers, or are you just a platform for technologies through the 29 acquired companies?

We consider all our end-user customers to be New Charter clients. The delivery mechanism for most of their services is through the community businesses that we’ve acquired and that we’ve built as the fabric of New Charter. But our focus in the last year has been on maturing our client engagement process, maturing our employee engagement process, and making sure that we have a uniformity that exceeds the maturity of the individual organizations that we acquired.

So the members of your community all use the same processes and technologies? Or is there room for each individual member of that community to do some things on their own?

The way we decide what to standardize on is, where is the value, and I know I’m a broken record about this, but where is the value for the client, and then where is the value for the employees? And so there are certain technologies that we need to standardize, and there are certain technologies and processes where discretion and autonomy should be left up to the management organization that's closest to the customer. What we really look at is what will we build from scratch and what level of local autonomy, local decision making, local discretion do we want to leave in place. Through the relationships we have with employees and customers, we know what they need, and we need to be able to deliver nuanced solutions. But for major systems, the systems that run all of our back office, our major service systems, our RMM (remote monitoring and management platform), we need to have a unified strategy. Where we draw the line is, where is the unified strategy necessary and beneficial? And what do our customers need the person closest to them to be able to make a decision?

The way that we’ve engaged a lot of the vendors is by setting up what we call the New Charter Marketplace to make sure that yes, there’s optionality and choice in certain areas of what we use, but there's the organizations that we've worked to build partnerships with and understand how we operate and meet us in our admitted complexity. We’ve taken the vendor landscape from kind of the ‘wild west’ of hundreds of vendors, and culled it down to the ones that we are going to focus on, even if it's not one specific solution in in every column.

Which RMM and PSA (professional services automation) platforms are you focused on?

Our strategy for our RMM and PSA is our partnership with ConnectWise. For the needs of our organization and the complexity, ConnectWise was the first organization that four-and-a-half years ago stood up and said, ‘Yep, we'll engage with you. Your pain, your model, it's hard for us, but we'll jump in.’ The industry, especially the vendors, loves to say, ‘Hey, what's your stack? What are you consolidating on?’ Those are things that are secondary to us. More important is, how do we deliver consistent client experience? How do we deliver a next-level experience in these things? [Stacks] don't matter as much to us as much as what we're going to be doing actually with the customers.

How did you decide to acquire ProTech?

Every acquisition we make has something very strategic about it. Because we acquired very quickly over the past five years, we’ve reached a critical mass where we have the right volume. Now we need to make sure that we're adding in strategic ways. What [Managing Partner] Johnson [Abraham] has built at ProTech is one of the most customer-forward organizations I've ever seen, and we saw that the first time we talked to Johnson and team in terms of how they care for their customers. We saw that in talking to their customers through the process. We've acquired 29 companies, and we talked with significantly more than that. We've had a lot of experience in terms of what really matters for customers. The client experience that ProTech delivers is something that we knew we needed to elevate the DNA of New Charter.

When NCT makes an acquisition like ProTech, do you typically get processes from the companies you acquire that you can apply to the rest of the community?

Our model is to acquire best-in-class companies and to make them better in two ways. First is to coach them and show them what else is possible. The second is through standardization and centralization of the key valuable components. In this case, we're going to learn a lot from what Johnson and his team do. It's not an immediate lift and shift. It influences the DNA of how we deliver those things. But we are relentless in finding new ways to engage customers more deeply because that's the future of MSP services.

In the acquisitions you've made, does the owner of the acquired MSP use this as a chance to exit the company, retire, find something else to do? Or are you managing to keep the owners on board?

One of the key criteria for us in organizations that we bring on is continuity of leadership through a season where we won’t have an abrupt transition. Nearly all of our leaders have stayed on, which allows for pace in transition and pace in growth. About 90 percent of the senior leaders are still at New Charter. Our focus has been on building through that, making sure that we have strong succession planning through the organization, and that it's not an abrupt change on the day of transaction. Leaders of organizations that are really looking for an abrupt transition are better off with another acquirer. …

If your investment thesis and your scale thesis doesn't involve keeping the acquired MSP’s people, and keeping them in the right positions, then you accidentally leak out all of your profitability and all of growth by just missing the point of what these businesses are. And what I love about MSPs is that they're not businesses that are really automatically easy to roll up. That's why people haven't done it very successfully in the past. But by following the chain of people you know and who people follow, then growth and client and employee retention are very possible during through that process. That wasn't true early on.

Have any of the MSP owners of the companies you acquired been brought up to the New Charter corporate offices?

I'm one. I co-founded Greystone Technology in Denver, Colorado, and New Charter founder Mitch Morgan and I talked about the ideas of New Charter for many years before it came to fruition. My company was actually the sixth acquisition. So our senior leadership is comprised of both MSP experienced leaders from the organizations we've acquired, and outside talent that we wouldn't be able to acquire as individual, standalone MSPs of the scale we were when we were acquired. So it's a great combination because that MSP DNA is there, but our mission is very different, and running at a $350 million scale is significantly different than running at a $10 [million] or $20 million scale. And so we have a wonderful balance of internal and outside talent that comes together.

That $350 million figure is NCT’s current annual revenue?

That's our current run rate.

New Charter has acquired 29 MSPs since its 2019 founding. Since then, have you seen the acquisition price of MSPs going up? With all the mergers and acquisitions in the MSP space, are valuations going up?

Valuations are a tricky game, because everything's focused on the multiple. But there's so many other aspects in terms of how you're calculating the EBITDA, how you're applying the multiple, and things like that. For us, we offer a significant reinvestment opportunity. So our value proposition is in the lifetime of the investment, and we stand behind it as the highest potential investment opportunity in this industry. And we’ve lived into that. We’ve seen minor ebbs and flows in terms of the overall valuations of the companies that we want to bring on, but we've seen maturity in the market in terms of what larger MSPs will be valued at, and that benefits all of us.