The Zaf Group’s Mike Zafirovski On Why ‘In Perpetuity’ Ownership Is Driving ACP CreativIT Acqusitions

The Zaf Group founder and executive vice president of ACP CreativIT Mike Zafirovski says his investment firm’s “in perpetuity” ownership plan has provided family run solution provider businesses with an alternative to private equity backed buyouts.

The Ephiphany That Led To ACP CreativIT’s Fast Growth Buildout

When Mike Zafirovski was acting as an executive advisor for private equity behemoth The Blackstone Group he had an epiphany.

“The epiphany I had six years ago was that I was making decisions to simply optimize the short term returns (of companies),” said Zafirovski, the former CEO of Nortel Networks and a 47-year technology veteran that held high-level executive positions at Motorola and General Electric, in an interview with CRN. “So the initial thesis for The Zaf Group was to acquire several well-run family businesses and keep them in perpetuity. So they will be around 50 to 100 years from now- after my lifetime. We are in the business of identifying companies that are well run and that the most strategic players would love to buy.”

That epiphany led to the creation of The Zaf Group, which has made four solution provider acquisitions over the last five years that have established ACPCreativIT- the umbrella company- as one of the fastest-growing national providers in the country.

“We have quadrupled (the size of the business) since we made the first acquisition,” said Zafirovski, founder of The Zaf Group and executive chairman of ACP CreativIT, reflecting on the journey that has put ACP CreativIT on the map as a $300 million solution provider powerhouse. “Half of that has come from acquisitions and the other half from organic growth.”

The latest acquisition came in July when ACP CreativIT added Versatile Communications, a 28-year-old Hudson, Mass headquartered solution provider to its roster.

The Zaf Group and ACP CreativIT’s mission to preserve these solution provider businesses “in perpetuity” working hand in hand with the founders is resonating with solution providers, says Zafirovski, who emigrated from the former Socialist Federal Republic of Yugoslavia as a teenager and became a much sought after technology executive.

“Private equity firms would also have loved to buy ACP,” said Zafirovski. “But there was a level of hesitation (from ACP) because there was a concern that they would get absorbed and a lot of the cultural values that brought the company to this point in time would disappear. There was also concerns that if you sell to private equity the business would get reconfigured and sold off as quickly as possible.”

The Zaf Group’s long term focus is paying off for owners and customers, said Zafirovski. “I believe the long term commitment to employees and customers is a recipe for significant success,” he said. “This is an employee first and customer first organization.”

You’ve just hit the five-year anniversary of your investment in ACP CreativIT. How do you feel about the investment and the acquisitions you have made to build out that business?

We feel absolutely terrific. It was July 17, 2017 when we made the first acquisition of ACP (CreativIT). When we decided to open up the Zaf Group family investment/advisory firm our goal was to acquire well run family businesses lacking a succession plan. So there was not an investment thesis of going into IT solutions or any other market.

Working many years in business and coming from a communist country where business was not necessarily being viewed very positively I fell in love with the business of business.

I was very fortunate to spend 25 years at General Electric. I spent five years with Motorola with (former Motorola CEO) Chris Galvin and got to know (former Motorola CEO and Chris Galvin’s Dad) Bob Galvin -arguably the Steve Jobs of the 20th century- and then spent three years (as president and CEO) at Nortel.

After the GE, Motorola and Nortel experiences, I thought I had the perfect job (as an executive partner for private equity company) The Blackstone Group. I was an executive partner and chairman of several of their companies. I loved private equity. I loved the investment thesis.

But frankly there was something missing which was long-term thinking. The epiphany I had six years ago was that I was making decisions to simply optimize the short term returns (of companies).

So the initial thesis for The Zaf Group was to acquire several well run family businesses and keep them in perpetuity. So they will be around 50 to 100 years from now- after my lifetime.

We are in the business of identifying companies that are well run and that the most strategic players would love to buy. My friend (former CDW CEO) John Edwardson told me that he tried to buy ACP several times. Private equity firms would also have loved to buy ACP. But there was a level of hesitation (from ACP) because there was a concern that they would get absorbed and a lot of the cultural values that brought the company to this point in time would disappear. There was also concerns that if you sell to private equity the business would get reconfigured and sold off as quickly as possible.

Our main selling pitch to owners is to say ‘If you sell to us we will keep that business in perpetuity. We will keep the best parts that you bring to the company and then bring from our side lots of activity and best practices.’

How did you choose ACP as the platform acquisition?

The ACP acquisition came from an introduction by (ACP founder) Arly Guenthner’s son in law Matt Schachman (a partner at Cold Bore Capital Management private equity company) and my son (ACP Chief Operating Officer) Matt Zafirovski. They are best of friends. I mentor many young people.

After a mentoring session with Matt Schachman, he asked me what did I think about VARs? I told him I didn’t know much about VARs but that it was seemed like a low margin hardware business that may be difficult to differentiate. Then he told me that he thought his father in law was the perfect example of what The Zaf Group is looking for.

Obviously my knowledge of the VAR business was not as deep as it should be. I told him let me meet Arly. Six months later we bought ACP. Arly stayed for the first five years. He was the chief executive for the first couple of years.

I can tell you it has been a fantastic acquisition. Soon after Scott Dunsire came on board (as president and now CEO) and we asked him who he thought was the best solution provider to look at as the second acquisition. Scott suggested Rick Chernick and Camera Corner Connecting Point.

We asked Rick Chernick the same question on who would be the ideal partner to bring on board next and he suggested Citon Computer led by Steven Dastoor and Sean Dean.

Then we looked at geographic expansion in the East and we brought on board Versatile Communications with co-founders John Barker and Kevin Meany and the Versatile team.

That has been the evolution of the business over the last five years. We have quadrupled since we made the first acquisition. Half of that has come from acquisitions and the other half from organic growth.

Is the perpetuity ownership the big difference between The Zaf Group model and the private equity approach?

I certainly believe so. I believe the long term commitment to employees and customers is a recipe for significant success. This is an employee first and customer first organization.

The Zaf Group has four cultural pillars: No. 1 – the highest of values with integrity being number one; No. 2 – the highest of expectations- we do not have to be the biggest but there is no reason not to be the best; No. 3 is an absolute commitment to people with leadership development for every single employee. We want our employees to retire from The Zaf Group, what ever their career ambitions are. We want to provide those opportunities; No. 4 is meritocracy. Our management team has bought off on these cultural commitments. We have made these commitments to our employees and customers and are, in fact, doing everything consistent with those cultural pillars.

What is the secret sauce for The Zaf Group and how has that contributed to your ability to grow ACP CreativIT?

There is a loss of faith today in organizations from government to universities to schools and businesses.

Family businesses are unique. They are standing behind their words of putting employees and customers first with a long-term perspective. I believe that is our secret sauce.

Were you surprised by the sophistication and business savvy of technology solution providers?

Frankly I had a lack of knowledge of how much the VARs have done in decades. I didn’t have a full appreciation of that. The whole concept of being a very effective marketer and value added reseller of product is a very, very big deal. To do it effectively really helps the whole industry. But we realize that is not sufficient. The whole concept of becoming a true solution provider and moving into services is something which I did not have a full appreciation or understanding of.

There was an article three years ago from (investment advisor) William Blair- & Co. on how value added resellers actually are becoming the future enablers of IT and truly the trusted advisors to CIOs and management teams. That clarifies the opportunity in this industry.

Our goal actually is to pretty much double the size of the company every two or three years for the foreseeable future: lots of it will be organic, but obviously it involves other acquisitions as well.

We are far from being satisfied. We love where we are, but we want to continue to add new capabilities and additional size to the business.

What do you with regard to strategic priorities and the prospect for future acquisitions?

Taking care of the customers we have in place is the priority. We are putting in a complete new ERP system and are in the process of integrating Citon and Versatile.

We are keeping our eyes wide open for opportunities for businesses that would be excited to be part of ACP CreativIT.

I had breakfast with Arly Guenther recently and he is thrilled with the acquisition. We have gotten the same feedback from Rick and Ryan Chernick (of Camera Corner Connecting Point). Rick was going to slow down and he is working more hours than ever before. Steven (Dastoor) and Sean (Dean) from Citon have given us the same feedback. And we are only 30 days into the Versatile acquisition and (Versatile co founders) John (Barker) and Kevin (Meany) are giving us the same feedback.

People are excited to be part of ACP CreativIT and to have a seat at the table. We don’t have all the answers with regard to the best way to leverage all the assets of the company, but all of the founders and executives who have joined the team have a voice.

We really hope that what ever our employees’ career aspirations that they can be met here. As good as the opportunities were at companies like Versatile, we do believe there are many more opportunities for employees that are interested in career progression as part of ACP CreativIT and The Zaf Group.

What’s your message to solution provider owners who may be looking for an exit and are being courted by private equity?

We talk to them about our objectives and the mission. The best selling point is having them speak with former owners. Ask them- Do they still feel like owners?’ Those owners are still working as hard as ever before- not because they have to but because they are enjoying it and having a big impact.

How do you structure the deal to make sure the owners are incented to continue to stay involved?

I believe that money is secondary for these owners. They have all been successful. They are financially secure. The opportunity to make something special and to be part of it is quite intriguing to many people.

There is such a lack of trust and lack of faith in organizations today. This is all about being part of an organization where people are heard.

For our employees it is about feeling they are part of something larger than they had before, but still keeping the best of the family sensibilities and warmth from the former company. We think that is a winning proposition.

What did you learn at GE, Motorola and Nortel?

All three of them had a really long term perspective.

I do believe that employees who believe that companies have long term objectives in mind are much more prepared to give it their best, to trust and to be driving their companies forward. That is not the situation with many companies today. That is the opportunity we have with The Zaf Group and ACP CreativIT.

Is the business world out of balance in that regard? Do you see more businesses than ever before focused on short term gains rather than building a long term culture and business?

It is a bit hard to generalize. I do know that if people get the sense that what you say is actually what you mean and what you are going to do it makes a difference. That goes a long way toward having confidence in the present and into the long term.

You came to this country with your family from the Socialist Federal Republic of Yugoslavia (now Macedonia) when you were a teenager. What impact did that have on you?

I came to this country with my family when I was 15 ½ without a word of English. I came to this country on a Thursday and started regular high school on a Monday. My parents were both factory workers unable to speak the language.

Do you still have a connection with Macedonia?

I go back to Macedonia at least once a year. I started an organization called Macedonia 2025. It’s a program with 29 people so far that is aimed at developing the next 100 CEOs in that country. The whole concept of well run businesses with values as the best asset that any society may have is something that is very close to me. I mentor many people.

Sometimes when you are working at a company you may do things one way but the board may expect you to do something different. Or you may run a company one way, while the private equity investors are expecting an exit.

I thought the Zaf Group would be an opportunity to eliminate any one of those potential obstacles or roadblocks because I really believe this is the way companies should be run.

We have a program called The Kellogg Zafirovski leadership program (at Northwestern University’s Kellogg School of Management) where we bring them to a four week enterprise leadership program.

We figure that if we add 100 CEOs to a country of 2 million people that could have a profoud impact on society.

When do you see as the most important trend in the MSP industry that you are now part of with ACP CreativIT?

Every four or five years there is a major transformation in technology.

Business transformation and digital transformation is a massive opportunity for ACP CreativIT to help companies -especially small and midsize businesses- digitize their businesses.

We have a lot of talented executives with technology prowess to tell us what’s around the next corner and how to stay relevant.

What surprised you about the companies that you acquired in this business?

Frankly the fact that Camera Corner existed successfully for 69 years. The longer a company is in business the more confidence they are going to be able to navigate through changes in the future. If you look at the companies we have bought with 69 years old, 38 years old, 28 years old and 28 years old. That is 163 years of combined experience. That is a wonderful way to think about the future as well.

What kind of opportunities do you see that ACP CreativIT and your companies can have on some of the issues facing this country?

The digital divide continues to be very significant. If anything it is expanding.

There is an opportunity for us to be doing more and more activities to help eliminate those (digital divide) gaps.

The only obstacle is our ability to think big.

How big could this ACP CreativIT business be as you look at this business as an in perpetuity business?

Much bigger.

I would love to double (our sales) every couple of years. We may or may not do that. We are confident that the platform for employees and customers is there to make that happen. The wonderful thing about an in perpetuity perspective is there is no targets we have to meet.

We can buy three or four companies in a year if we are ready to do that. If we don’t think we are ready to buy somebody for another year or two we’ll wait.

How much investment have you made in the platform with systems and processes to be successful?

We have invested several million dollars in our IT system. That is one example. We have also made big investments in terms of our technology practices.

We have made a big commitment to a functional organization with go to market teams with practice leaders for cybersecurity, cloud , managed services, mobility and rapid deployment, and voice. That is a massive investment in SG & A (sales, general and administrative costs) that we are making to support the business for the long term.

Our goal is to put the platforms and capabilities in place to grow market share and to drive the business for the long term.

How is The Zaf Group ethos restoring the faith in institutions like businesses?

People want to belong to something they have confidence in and believe in.

We have leadership that truly believes in our four cultural pillars: the highest of values – integrity being number one, A lot of people talk one way and act another way. No. 2 the highest of expectations –We do not have to be the biggest, but there is no reason not to be the best. No. 3 We have a commitment to people leadership development. That is a huge investment. No. 4 is meritocracy. We do not compromise on these standards.