Channel programs News

Intermedia Bought By Private Equity Giant After Landing Key Leaders From Microsoft, Dropbox

Michael Novinson

Cloud business applications provider Intermedia will be purchased by private equity powerhouse Madison Dearborn Partners, just days after announcing that Microsoft channel superstar Eric Martorano will join the company.

The Mountain View, Calif.-based company, No. 189 on the CRN Solution Provider 500, said the infusion of capital from Chicago-based Madison Dearborn will enable Intermedia to invest more in its VAR and MSP channel, unveil new products and tools, and possibly pursue acquisitions around unified communications or security, according to company CEO Michael Gold.

"We're a great asset for a private equity firm," Gold told CRN. "Many of the cloud companies aren't great fits because they don't make money."

[RELATED: Microsoft Channel Superstar Martorano To Take Intermedia SVP Worldwide Sales Job]

Since being purchased by Oak Hill Capital Partners in May 2011, Intermedia has tripled its annual revenue to $200 million and its user base to 75,000, as well as tripling both EBITDA and product offerings. Oak Hill's sale of Intermedia to MDP is expected to close later this year. Financial terms were not disclosed.

Thanks to that growth, Intermedia was able to attract Bob Tirva, Dropbox's corporate controller, to become its CFO in late August. Meanwhile, Martorano, Microsoft's U.S. partner sales general manager, will become senior vice president of worldwide sales beginning Thursday.

"It all seemed to be happening at the same time, but it wasn't an orchestrated sequence of events," Gold said.

MDP was a good fit for Intermedia thanks to its competitive financial offer and track record as a sophisticated, successful investor. Gold said he's personal friends with some of the people at Madison Dearborn, and has consulted and partnered with some of its portfolio companies.

"They're of the scale that they can help us transform to the next stage," Gold said. "I've heard nothing but positive feedback on the type of firm they are."

Any Intermedia acquisitions under MDP would likely by focused on expanding within unified communications or security, expanding outside North America or consolidating smaller companies that do some of what Intermedia currently does, Gold said.

Security and UC are currently Intermedia's fastest-growing solution areas, Gold said, and any acquisitions in that space would likely be focused on expanding capabilities or scale.

Likewise, despite having customers in 190 countries, Gold said Intermedia currently derives the lion's share of its revenue from North America and has its only foreign brick-and-mortar presence limited to an office and development team in the United Kingdom.

As the world's largest independent provider of cloud-based Microsoft Exchange email, Gold said Intermedia will benefit from Martorano's tremendous knowledge of the Microsoft cloud ecosystem and proven track record of selling in partnership with the channel community.

The shift of more Microsoft business to Office 365 will increase Intermedia's stickiness, Gold said, since customers that source through Intermedia get additional applications aligned with Office 365, as well as backup, security, cloud voice solutions and support. Gold expects Martorano can help convince Microsoft partners that Intermedia's platform will allow them to sell Office 365 in a very profitable way.

"Microsoft's thrilled with it [Intermedia's hiring of Martorano] because they have someone they know, trust and like, and Microsoft will grow alongside us," Gold said.

Intermedia also considered selling to a strategic industry buyer and an initial public offering (IPO), but determined that MDP was the best fit for all parties involved. Gold said Oak Hill was looking to sell as part of the typical five-to-seven-year investment cycle adhered to by private equity firms.

MDP made a major investment in Lansing, Mich.-based hosting and managed cloud services provider Liquid Web in September 2015, and held a 11.38 percent stake in Lincolnshire, Ill.-based CDW, No. 5 on the SP 500, as of July 2015. MDP and Providence Equity Partners were majority owners of CDW from 2007 to 2013.

Gold hopes that some of MDP's other portfolio companies will become customers of Intermedia, but he doesn't anticipate any synergies beyond that.

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