Cloud5 Bets Big South Of The Border With interTouch CALA Deal

Cloud5 Communications CEO Mark Holzberg tells CRN that his company’s acquisition of interTouch CALA expands the hospitality MSP and MSSP’s Latin America footprint, bringing regional expertise, hotel customers, and growth opportunities across Central and South America.

Cloud5 Communications’ acquisition of interTouch CALA gives the hospitality-focused MSP and MSSP a deeper Latin America footprint as hotel brands rapidly expand across Central and South America, CEO Mark Holzberg told CRN.

The deal, expected to close Sept. 30 with an Oct. 1 launch, brings Cloud5 a Latin American customer base, regional business expertise, and relationships Holzberg told CRN would have been difficult to build organically. Cloud5, which today serves about 5,000 hotel customers, has historically been focused mainly on the U.S. and Canada, with limited business in Mexico and the Caribbean.

With interTouch CALA, Cloud5 plans to bring its broader MSP and MSSP portfolio—including high-speed internet, telephony and managed network services—to hotels throughout Latin America while also supporting existing U.S. customers that want a provider capable of servicing properties across the Western Hemisphere.

“So this for us is a relatively small business and a relatively small acquisition, but South America and Central America is a huge area of growth for hotel brands. Marriott, Hyatt, Hilton, and others are growing by 3X there,” Holzberg (pictured) said.

The acquisition is not about IT expertise, but about Central and South American expertise, Holzberg said.

“We've actually seen some of our competitors try to go into Central and South America organically, and it didn't work out real well for them,” he said. “Those relationships, that understanding, it's not there. There are country-specific regulations on how you procure product and how you pay your people. All of that is what this acquisition brings to us, which is more than the technical expertise.”

There’s a lot going on as Cloud5 builds a major market presence south of the border. To learn more, read CRN’s complete conversation with Holzberg, which has been lightly edited for clarity.

How do you describe Cloud5?

Cloud5 is a managed IT services company with a focus on the hotel and hospitality industry now servicing all of the Western Hemisphere.

Why the focus on the hotel and hospitality market rather than having more of a broad marketing focus?

First of all, that was my background, and the companies that came together as Cloud5 through some acquisitions about 12 or 14 years ago had a focus in the hospitality industry. The hospitality industry is a little bit of a different animal. The ownership structure, the way businesses are organized, the support they need 24x7. You've got a building, a hotel, that, for big full-service hotels, is an office building in a lot of ways. It has employees and it has residents that check out every two days instead of staying for a couple of years. So there are a lot of peculiarities to the industry. After coming out of [the COVID-19 pandemic) when the hospitality industry just got hit really hard, we thought about that a lot. We do some things in some adjacent markets. But we've got 5,000 hotels as customers. We've got a lot of expertise in the area, so we really doubled down on hotels and hospitality. The industry also lost a lot of IT infrastructure and people during COVID and didn't get all those people back, so the need for outsourced IT resources in an MSP just probably grew as a result of that.

Cloud5 just acquired the Latin American business of interTouch called interTouch CALA.

InterTouch has operations in Asia and in Central America. ‘CALA’ is short for Central and Latin America. We basically bought the Central American and South American business, its Latin American business. InterTouch is keeping its focus on Asia Pacific. There may be some dispositions there as well. I've known the owners of the company for probably 20 years. They reached out, and we ended up talking about this transaction. They were looking for a good steward for the business they had developed in South and Central America. Our relationship helped make this happen.

Before the acquisition, what was Cloud5's presence in Latin America? How big was it?

Very small. We were principally North America, and when say North America, I really mean the United States and Canada. A little bit in the Caribbean, a little bit in Mexico, but very little. Although with the major brands, including Marriott, we were fully certified to operate there. So this for us is a relatively small business and a relatively small acquisition, but South America and Central America is a huge area of growth for hotel brands. Marriott, Hyatt, Hilton, and others are growing by 3X there. Those brands and other management companies were growing there very quickly.

And so we decided that having a bigger operational presence and getting to really know that part of the world, South America in particular, was very important to us. South America is very strong on existing relationships. Contractual terms, commercial terms, regulations are very different throughout South America. So acquiring a company that knew the region, that has a footprint, was important. It's a relatively small company, but they've got hotels in probably every country in South America, most countries in Central America, and a lot in Mexico. Buying that expertise and knowledge of the region for us was the smarter way to enter that region than just trying to do it organically.

Is this about expanding your ability to service existing clients who have operations in Central and South America, or is it about expanding to new clients who you might not have reached out to before because of their Latin America presence?

Absolutely both. We've got customers in the U.S. that would like us to be there, but the other piece to it is sort of the reverse as well. The company that we bought primarily provides high speed internet and network managed services to hotels throughout South America. We're a little broader. We're a full MSP and MSSP with high-speed internet and telephony. And so we're going to introduce all of those services through the organization that we're buying in South America. We'll be able to grow and invest in them and give them a bigger footprint there than they had previously.

How many people are coming over with the acquisition?

It's several handfuls. I think just about everybody is going to come over. We are at the same time serendipitously working on an acquisition of a much larger company in the U.S. that is a very similar company to ours, but that company also has offices throughout Mexico. And so there's a lot of synergy there. That will really give us a big toehold there. So as I mentioned before, we were really North America-based, and now our go-to-market is going to be a full IT management services company in the Western Hemisphere.

Did the interTouch CALA acquisition bring any expertise that you did not have previously?

It didn't bring us much technical expertise that we didn't have. The expertise it brings is how to do business in South America: the right business partners to have, the right relationships to have, the regulatory statutes, all of that. It’s a very different market and really important. We've actually seen some of our competitors try to go into Central and South America organically, and it didn't work out real well for them. Those relationships, that understanding, it's not there. There are country-specific regulations on how you procure product and how you pay your people. All of that is what this acquisition brings to us, which is more than the technical expertise.

Has the acquisition already closed?

Looks like we'll close it on September 30, so we’ll have an October 1 launch. It's just easier for all the finance guys and everybody else to do it as of the first of the month. We've got the definitive purchase agreements done. We're just biding our time and getting some customer consensus.

I have to ask: How much did you pay for the company?

I'm not going to tell you how much I paid for it. We have a confidentiality agreement with the sellers. We're paying a fair amount, and we're also planning on investing a bit. We're gonna really reinvest in this company. They've got some really great bones, and we'll be beefing them up over the first 90 to 180 days.

How did this opportunity come about?

The owners of the company, led by Executive Chairman Ted Helvey, who have been in the industry for a long time and owned a number of other companies including manufacturing companies and software companies that they've been disposing of, picked the phone up and said, ‘Hey, we've got a really good company in South America, and we’d like to find a good home for the people. We want to find a good home for the customers. We want to get a fair price for the company, but we're really we're really concerned about the customers and the people. And since we've known each other, I wanted to reach out to you.’ That conversation happened about six months ago, and it got us to where we are.

Did he call anybody else?

I don't think so. We've known each other a long time. I mean, if we had some negotiating back and forth, of course. Once we settled on where we were going to be, I went down with my head of operations and spent a bunch of time, mainly in Mexico with the management team, and things just really aligned. And at that point, it just made sense for everybody. They've got a lot of Hyatts, and we're very close to Hyatt, and Hyatt was very positive on the acquisition. We're certified by Marriott. Marriott's growing by 3x in South America and they're very supportive. So once that lined up, once we had the purchase price in place, it didn't really make sense to make a whole lot of other phone calls.

Is there a lot of work to do to integrate the companies?

We've got a team of people, and we actually brought in for this acquisition another team that will be working to get it right. We've got a transition management executive who's overseeing the actual transition with playbooks and making sure that all of our department heads are working together. But yeah, there's a significant amount of transition on systems and HR and people. But that planning has started. We were able to start that planning before we even signed the purchase agreement. We got a head start doing that.

Has Cloud5 done acquisitions before?

Our company came together via acquisitions. We also did an acquisition after COVID of a smaller company in our space that didn't come through COVID as well as they could have, a small St. Louis-based MSP called MTS. And prior to Cloud5, I was CFO of a company called TravelClick, and we grew that company principally through acquisitions. So we've done this a few times.