The company’s staff was taken by surprise when the news was announced, and concerns were expressed that their laid-back culture would be changed. IT Weapons will however operate as a subsidiary, nothing will change internally, and the big change will be exposure to 18,000 Konica Minolta Canada customers.
Brampton ON-based managed services-focused solution provider IT Weapons has been acquired by Konica Minolta Business Solutions Canada. IT Weapons sees the deal as a new beginning. While past MSP acquisitions in the U.S. have seen the acquired companies quickly debranded and integrated, they see this deal is different. IT Weapons will act as a separate Canadian subsidiary, and will manage what they expect to be a large expansion in Canada, which will be through organic growth at first, but which will likely see the acquisition of more Canadian MSPs under the IT Weapons banner.
“We will run things here in Canada,” said Ted Garner, IT Weapons’ CEO. “We see ourselves as Team Canada and All Covered as Team USA.”
All Covered was the first MSP acquired by Konica Minolta in the U.S., in 2011, and their brand has been used since for the entire Konica Minolta IT services division, which has used an aggressive acquisition strategy to help drive its growth, as All Covered had done itself before its acquisition. IT Weapons is the sixth such acquisition for All Covered in 2015. The others, however, were all in the U.S. IT Weapons being in Canada makes this deal a departure from All Covered’s usual M&A strategy, in which acquisitions are debranded and fully integrated into the company.
“We are a foundational acquisition for them, and so will have a separate division organization, be a wholly owned subsidiary,” Garner said. “We are the services organization to Konica Minolta Canada’s sales organization, and that is the attractive aspect. We created a services engine and a channel of our own to outside organizations. They can just bolt their sales organization to this, and we are already primed for a significant expansion of business.”
Garner said this potential for immediate and quick expansion was one of the factors that made them attractive to Konica Minolta.
“They really are excited about our ability to scale already,” he said. “They expect to buy more companies in Canada, but at first they didn’t expect this beachhead was capable of such strong organic growth. There will be acquisitions in the future, and they will be on the IT Weapons team, but we really want to do some organic growth first. Konica Minolta has been really receptive to that kind of thinking, so it’s really cool.”
IT Weapons has been in managed services for 13 years. They operate three data centres across Canada, with support centralized in their Brampton Service Centre of Excellence. In addition to Canada-wide coverage, they also operate in the U.S., which accounts for about eight per cent of their revenues. Those revenues are over $20 million a year, and come from 65 fully managed clients and several hundred project based clients. Compared to other MSPs, in the U.S., as well as in Canada, many of those clients are relatively large.
“We have 65 fully managed clients, but many of those have ten sites,” Garner said. Todd Croteau [All Covered’s CEO] says that their average managed services client in the U.S. spends $2000-$3000 a month. Ours is $10,000-$12,000-$14,000 a month. We are a little unique there, and All Covered wants to study us a little more too.”
IT Weapons’ business strategy has been to build an extremely strong services execution team, so that they didn’t need a big sales team to drum up leads. Such a team would be an awkward fit in IT Weapons corporate culture in any event, where they have a no-commission, no quota environment.
“We do anticipate hiring more account management people, but all the hunting will go on in Konica Minolta Canada,” Garner said.
The deal does bring an enormous sales asset to IT Weapons though – Konica Minolta Canada’s install base of 18,000 customers, who have not previously been sold IT services by Konica Minolta’s reps.
“These customers are across the board from very small up to the enterprise, but with 18,000 of them, there will be a lot of sweet spot acquisition hits for us,” Garner said. “We need to shorten that list and prioritize the ones we want to go after. [President and CEO of Konica Minolta Business Solutions (Canada)] Chris Dewart’s team is working on that right now.” IT Weapons will train the Konica Minolta reps on how to sell their services offerings, something they have done before for product-focused vendors they work with.
Selling services to an install base of Konica Minolta customers is a much easier task than selling to entirely new customers, Garner said.
“Think of it like they have been selling iPhones to their clients for years. It’s a lot easier to sell iWatches to iPhone customers.”
Garner said Konica Minolta’s expectations for the services attach rate from these customers is very conservative and achievable.
“I thought that ten per cent would be an interesting number, but Japanese culture is very conservative and Konica Minolta would be happy with one per cent,” he said.
Even by the relatively relaxed standards of the IT industry, IT Weapons has a laid-back and informal work culture, in which many employees sport company tattoos, and Garner said that won’t change.
“We went through a lot of wrestling internally when we were considering the offer, and if we were in a typical situation, it probably wouldn’t have been a good fit,” he said. “With the structure that is being implemented, we get to keep our culture, we get to keep running the company as we see fit, and we get access to 18,000 new Canadian clients.”
Garner acknowledged that selling the idea to IT Weapons’ staff has involved some work.
“We announced this on Tuesday, at our regular quarterly get-together,” he said. “They were fairly surprised. There were emotions, and I was nervous about upsetting anyone. Things improved once we introduced Todd [Croteau] and Chris [Dewart] to the team, and then Jason [MacBean, IT Weapon’s President and Chief Architect] and I walked up and cut their ties off. That showed they are good guys, not uber-serious businessmen.”
Since then, five of six scheduled group employee meetings have happened – the last is at lunchtime Friday – and Garner said they had gone very well.
“There was admittedly some concern, but my goal was to get everyone in a ‘wait and see’ category, to give us time to prove this is a good thing. We started at about 80 per cent willing to wait and see, and I think we are now at 100 per cent.
Garner emphasized that all the senior IT Weapons staff is staying, that no one is being let go, and that in fact, IT Weapons is aggressively hiring.
“We already had 10 jobs on our website, looking for smart people, and we will be adding new account managers to that,” he said.
Finally, Garner noted that the initial integration chat has gone very well. He acknowledged that in the very long term, the IT Weapons brand will likely vanish, but that it is many years off.
“As the Konica Minolta brand gets stronger, it’s likely that both the IT Weapons and All Covered brands will disappear, and we will all be branded Konica Minolta Business Solutions, but that’s 5-7-10 years away. For the foreseeable future we will operate as IT Weapons and any growth and acquisitions in Canada will be under our brand.”