Meriplex’s Neil Medwed On Acquistion Strategy: It’s About ‘The Art Of The Possible’

‘The driving force behind everything I do is how can I help other people succeed? How can I help other people avoid mistakes? ... Meriplex allows me to positively impact customers and employees, make people very wealthy, and put them on a path going forward to live their life dreams, whatever they may be,’ says Meriplex’s Neil Medwed, vice president of corporate development and M&A.

The MSP dealmaker

Neil Medwed has been a fixture in the IT industry for 45 years, including a 26-plus-year run as the owner of Preferred Technology Solutions, a Dallas-Ft. Worth-based MSP. That changed three years ago when Preferred Technology Solutions was acquired by Meriplex Communications, a Houston-based provider of managed carrier, IT, and cybersecurity services.

Meriplex, which is listed on CRN’s 2023 Managed Service Provider 500, had previously made one other acquisition, but was hungry for more. Medwed, now the vice president of corporate development and M&A at Meriplex, had industry contacts that helped him stand out at his new company where he was put in charge of pursuing more potential acquisitions. And since then, he has brought nine other MSPs into the Meriplex fold.

Meriplex had the backing for its ambitious M&A spree. Clairvest Group, a Toronto-based private equity firm founded in 1987, in 2018 invested in Meriplex. Under Clairvest, Meriplex grew from an annual revenue of $30 million to over $200 million, Medwed told CRN.

[Related: Preparing An MSP For Private Equity: ITPartners+ CEO Lays It Out]

Meriplex last year took on additional investment when London-based Virtruvian Partners acquired a majority stake, with Clairvest retaining a minority stake.

The investments have given Meriplex the ability to grow via M&A, and Medwed gave it the ability to open the doors of MSPs who may not have considered being acquired. And bringing smaller MSPs into a national managed services force is important to reach the kind of clients they might not otherwise reach, he said.

“When you look at our industry, there’s tens of thousands of SMB MSPs,” he said. “For the enterprise, say 10,000 end users and up, there’s a handful of MSPs like IBM Global Services there. But when you look at the mid-market, say 200 to 10,000 end users, until Meriplex there hasn’t been a nationally recognized MSP in the United States. And that’s exactly what Meriplex is building through organic growth as well as through strategic acquisitions.”

Medwed and Meriplex are at the center of an expansion to meet the ever more complex requirements businesses have for managed services. To see how they are doing it and what it might mean for other MSPs, read CRN’s interview with Medwed below.

What is Meriplex?

Meriplex was a 23-year-old CLEC (competitive local exchange carrier), a father-son company, a circuit provider, voice-over IP provider. Dave Henley, our CEO, he’s brilliant. His father held one of the original patents of voice over IP. So David came from a technology family, graduated Texas A&M, and wanted to open up a company. So they opened up a voice over IP slash circuit business, and that was their business until about four-and-a-half years ago or so when they had a bigger vision: Combine managed circuits with managed IT and managed cybersecurity to meet the wave of the future. David told his father, ‘Dad, this is what I believe in.’ And his father said, ‘Son, if you believe so deeply in that, find private equity, take out the family portion of the business, and live your dream.’ And that’s basically what happened. They interviewed a bunch of different private equity firms, and found a fantastic one in Clairvest Group.

One reason they chose Clairvest was its investment philosophy. With Clairvest, 37 percent of the fund was investments from people who worked at the company. And that’s one of the reasons, besides having great people, why David picked Clairvest. It was a great ride for three and a half years. But a year ago, we got recapitalized by [London, England-based] Vitruvian Partners, a $21-billion private equity firm.

Why did Clairvest invest in Meriplex?

Tens of thousands of MSPs were started either by a salesman that said, ‘Hey, I can do it better and open an MSP,’ or by an engineer or technical resource who said, ‘Hey, I can do it better.’ Rarely is it a Harvard MBA in finance who said, ‘Hey, let me go open up a technology company.’ There are exceptions, of course, but most CEOs are not financial whiz kids. Broad brush, they’re great sales and technologists or great engineers and technologists, but rarely are they financial superstars. So many organizations have a glass ceiling to their size.

Meriplex was an approximately $30-million company when David went to private equity. And let me say something about David Henley. He’s 45 years old. In my 40 years in this business, he’s easily a top-five talent. Many CEOs have to be the smartest man in the room, and they don’t like to be challenged. David wants people just as strong as he is. He likes to be debated. He likes to be questioned. Even if he believes in what you’re saying, he’s going to debate just to make sure that the idea’s feet are firmly planted on the ground. By debating, you may find little angles that you or the other person didn’t think of.

David chose Clairvest as a private equity firm. It gave him a different lens to look through. Everybody has talents. Everybody has positives, negatives, strengths, weaknesses. There’s a difference between making money and creating wealth. When you’re trying to build a company, you want to invest with a focus on the things that are gonna move the needle and create wealth in a much better way. And when you couple a great technologist with a great financial mind, especially one it’s been there done that and has experience to look through a different lens to offer advice, that can be very valuable.

Why did Vitruvian Partners invest in Meriplex?

Every business has little glass ceilings. How do you go from this size to this size to this size. Each jump takes a different layer of management. When you hire different ways of management, it takes time for everyone to go from crawling to walking and to running before returning more than they take out financially. Of course, that can hit your earnings. That can hit many things. And when you move to that higher rung, it’s a whole new set of issues.

Meriplex was Clairvest’s best investment in 45 years. But when David told Clairvest, ‘Hey, it’s time for me to go to the next level. And I need a partner that can truly help me get to that next level,’ they agreed. But they kept every penny they could in Meriplex. They’re still a big investor in Meriplex even though there’s another organization Vitruvian, who’s a majority shareholder of the company.

When you look at our industry, there’s tens of thousands of SMB MSPs. For the enterprise, say 10,000 end users and up, there’s a handful of MSPs like IBM Global Services there. But when you look at the mid-market, say 200 to 10,000 end users, until Meriplex there hasn’t been a nationally recognized MSP in the United States. And that’s exactly what Meriplex is building through organic growth as well as through strategic acquisitions. Vitruvian Partners is very skilled at building a north of $200-million company into a $1.5-billion company. And our goal within three to four years is to be that $1.5 billion company. It’s my personal goal to have a Meriplex office in every NFL city. And I truly believe that we’re going to accomplish those goals. Vitruvian gave Dave Henley a whole different vision set of lenses to look through to get the company there.

How did Meriplex get into managed services?

Meriplex acquired I.T. Works in 2019. The relationship between Meriplex, a telecom company, and I.T. Works, traditional MSP and MSSP was that, for 17 years, whenever Meriplex needed higher level technology support, they partnered with I.T. Works. When Clairvest came in, their first acquisition was I.T. Works, which proved the model of taking managed circuits combined with managed IT and managed cybersecurity was the wave of the future? And my company, Preferred Technology Solutions, was the second major acquisition.

I wasn’t looking to sell per se. But it was always in the back of my mind. It should always be in the back on your mind as a strategy. If you can hit the numbers you need, take risk off the table, it can be a good thing. So [one day] we had a call with Dave Henley, and five-and-a-half months later, I became Meriplex. I believed in his vision, his leadership, the leadership team, and what he was trying to grow and build.

What is your role in Meriplex?

The power Meriplex was intriguing to me. We had grown from a 20-person firm to about 80 people total a bit over three years ago. Now, with the backing of private equity and the support of David Henley and the leadership team, we’re about 730 people today. And instead of just being in Dallas and Fort Worth, we’re currently in about 14 cities with many more on the way. I’m in charge of the inorganic growth, the national expansion through acquisition. We have a great chief revenue officer in charge of organic growth, which is well north of 20 percent year-over-year. When you get to our size, that’s a very good rate.

We’ve acquired 11 companies since I started doing M&A. The way that happened was, I’ve always been big in technology and communities and leadership and different things, and I’m pretty well known from the community standpoint. After I became part of Meriplex, I took a friend in the Dallas area to dinner and talked about Meriplex. We bought his company. Then I had a friend call me from California needing some work in Dallas. And I shifted the conversation to what I call the ‘art of the possible’ and what would it be like if he were part of Meriplex. And they became Meriplex.

Our private equity and Meriplex leadership were like, ‘Neil, how are you doing this?’ And I said, ‘I know a lot of people and believe so deeply in what we’re building, growing, and doing that it’s easy for me to talk about creating wealth together.’

An M&A event has to be good for customers and for the employees. If it doesn’t check both of those boxes, don’t even talk about being good for the ownership. Obviously, it also has to check that financial box. But, also very important, for people like me, what’s the next chapter going to be? What are you going to be doing? You know, some people want to exit stage left, which is fine. Most people want that. For me, I wanted to do something different. I was reaching the numbers I needed for my family financial situation. But I wanted to be able to go to networking and charity events, talk to the Dallas-Fort Worth business leaders, and put the power Meriplex behind them so they can feel confident introducing me to their CIOs and IT directors. And then I could hand them over to our staff and go out shaking more hands. Which is in essence what I’m doing today on the M&A side.

I speak at 10 or 12 conferences a year on two things. Number one is, obviously, mergers and acquisitions. Number two is, if I knew then what I know now, how I would run my business differently, because I’ve learned more in the last three years at Meriplex than I did in decades before. And I would have run my company quite differently.

The driving force behind everything I do is, how can I help other people succeed? How can I help other people avoid mistakes? If I do that, I truly believe that whenever I go to the pearly gates or whatever you want to call it, it’s how I’m gonna be judged ultimately. Meriplex allows me to positively impact customers and employees, make people very wealthy, and put them on a path going forward to live their life dreams, whatever they may be.

What do you look for in potential acquisitions?

The bigger you get, the bigger you have to get. So I look for quality revenue, quality recurring revenue, quality leadership that wants to stay on hopefully, and year-over-year growth. Companies that that would have been good targets for me a year ago are not necessarily good targets today. We target companies with higher EBITDA today. $1 million dollars in EBITDA when you’re a very high EBITDA company doesn’t move the needle very much. So my task is to work with larger firms. I’d say very minimum $10 million in revenue unless it’s a strategic thing.

Geography is important. Meriplex is very strong in Texas, on the west coast, in California, Oregon, and Colorado. We have locations in Indianapolis, Indiana, in Alabama and Louisiana. We just did our first acquisition in Pennsylvania. So I’m looking strongly up and down the east coast and the Midwest. But that does not preclude me from bringing on the right companies wherever they may be. So geography does have a play, but it’s not going to take me away from going after targets that strategically make sense.

Also, something that’s always very nice is verticals. Right now, we’re very strong in healthcare and in banking and finance. You know, we’re getting stronger in legal and automobile dealerships.

I look at two things. I look at where we are and where we aren’t. Then I look at what verticals we’re strong and where we’re not strong. When Meriplex acquired my company three years ago, they were based in Houston and I was in Dallas, but back then only 30 percent of their customers were in Texas. So even back then we had a national footprint. As we expand, we don’t need to have physical offices to be very effective because of the power, the scale, and the scope of Meriplex.