CTSI Execs Discuss Acquisition Frenzy, Overcoming Supply Chain Challenges & More
CTSI leadership lends insights into the integrator’s aggressive growth, becoming a one-stop shop, operational challenges and golden opportunities.
Founded more than 50 years ago as commercial low-voltage integrator Corbett Technology Systems Inc., fortified with private equity capital since 2017 the Chantilly, Va.-headquartered CTSI has gone on a head-spinning acquisition tear.
As impressive as its pace has been, even more startling is how many of the additions are among the industry’s best known and most respected operators. Those include the likes of The Protection Bureau, AFA Protective Systems and Structure Works.
These moves have grown CTSI to more than 1,500 associates and a footprint of 38 stateside locations and representation in 22 countries overall. As the company’s leadership explains, there is no plan to stop the buying frenzy anytime soon.
“We have been highly acquisitive the past two years with plans to continue on a similar pace. The market is ripe for a continued consolidation of top players in this space. We are working on a large acquisition that should close in the coming months. International markets are also a great expansion opportunity. We buy great companies with strong leaders, a history of revenue and EBITDA growth, as well as for geographical expansion or technology depth,” says CTSI CEO Joe Oliveri.
To gain an inside vantage of CTSI’s rapid ascension, SSI spoke with Oliveri, Vice President of Mergers & Acquisitions Sergio Katz and Vice President BD, Communications & Corporate Marketing Alan Rosenkoff.
Some of CTSI’s recent acquisitions have been especially eye-catching; could you speak to a few of those, like AFA Protective Systems, The Protection Bureau and Structure Works?
Sergio Katz: When I started about a year ago, our acquisition strategy was to bring the fire and security platforms into play. We wanted to take the company from a technology standpoint and put all these businesses together as a one-stop shop. A lot of the acquisitions I brought to the CTSI Board and to Joe [Oliveri] were off-market. That’s where we thought our strength was an opportunity, especially with the AFA acquisition where they weren’t looking to sell.
Our strategy of what we presented to them from Day 1 was important to them and to us as well. That acquisition was important because we were trying to build our anchor businesses or get to our anchor business from a fire and then from a security platform with The Protection Bureau. With fire, we look at AFA because of the nationwide coverage they have, the national accounts they have.
With Structure Works, it’s the big logos they have as well as the international and national accounts. It’s exciting to be able to expand our growth through not just the Mid-Atlantic area but also nationwide and throughout the world.
What lessons have you learned along the way to make these acquisitions as seamless as possible?
Joe Oliveri: One that’s very important is communication. We do a lot around communication to the employees and team members to make sure they’re fully informed because as the acquirer, we know what we plan on doing. The company that’s being acquired, honestly, they’re very nervous. A lot of the team members, they’re worried about their benefits. They’re worried about their jobs. They’re worried about their salaries. They’re worried about changes, but we’re not making a lot of changes.
I make sure I’m very vocal and let them know not a lot is going to change. “You’re going to continue to do your job. We’re not going to mess with your benefits. We’re not going to mess with your salary. We’re going to take good care of you.” We need to be aware that they’re very sensitive, and they should be because they don’t really know everything. We need to overcommunicate. We make sure they’re comfortable. We do that by video. We do that by letters. That is a top lesson I learned regarding the acquisition targets.
Do you see consolidation as a major trend for the industry itself ?
Katz: We are seeing more consolidation now. Other private equities have seen what we have done and they’re looking at similar strategies. M&A has been extremely active and is going to continue to be probably for the next few years. The idea of consolidating is hard in our industry as it’s so fragmented. We’re excited about the opportunity of the bolt-on acquisitions, not just large acquisitions because you have to be very opportunistic and we’re super excited of what we did last year and continue to do this year.
What is your ideal or target for acquisitive vs. organic growth?
Katz: We’re way ahead of our integration process, which is great. The idea is to look at our synergies as well as opportunities of cross-selling to grow organically. We have seen, between all these 10 businesses that we acquired, a great amount of those opportunities.
Oliveri: Most of our geographic expansion is going to be to chase our global accounts and support our existing customer base. That’s really what’s going to drive where we acquire companies. As far as organic growth, we expect each business on its own synergies to grow at least 10% to 15%. Then we have cross-sell on top of that. Cross-selling for me is a very, very big opportunity because there’s many different forms of it. One cross-sell is just taking a customer where we just service in the Southeast, and then taking our footprint in the Northeast and using that relationship to sell.
Another area is product lines, whether it be cybersecurity or whatever we have, taking that to all of our business units. There is a really good opportunity and we’ve set up a really good program, not only from a rules of the road and compensation program, just how it works. It’s easy to say “cross-sell,” but it’s not easy to accomplish. We’ve hired a cross-sell leader. That’s all they do, dedicated to cross-sell and tracking that, making sure the meetings happen. Because if you don’t do that cross-selling will not happen naturally on its own.
What vertical markets are core and what are some you envision strong growth?
Alan Rosenkoff: We’ve been historically really strong in the healthcare, large enterprise, K-12 and higher education markets. Through some of our recent acquisitions we’re seeing critical infrastructure in datacenters and public utilities as great markets, along with growth opportunities for us retail, financial, transportation and logistics.
You talked about the cross-sell, what else does CTSI bring to the table to cement its value proposition to clients?
Oliveri: The breadth of our offerings, from critical infrastructure to fire to security to cybersecurity. We have a solid platform to deliver as a one-source to a customer. That’s the main thing. The second piece is service. What’s going to determine whether we’re successful moving forward or not is how we serve our existing customers and if we serve them better than our competitors. The most important thing is being customer-focused and taking care of our customers and making sure it’s easy to do business with us.
How’s this year shaping up? You mentioned the 10% to 15%, is that being hit? What do you see the next couple years?
Oliveri: We are seeing that growth. Growth has been really strong. The backlog is up significantly, but the challenge we have, that many of our competitors have, is just product shortages. We’re really working hard to minimize those product shortages, and also labor. Labor is also a challenge.
I look at the two things that we’ve faced that are really holding us back from growth; it’s having the product we need and having the labor to execute those projects. That’s by far the industry’s biggest challenges. We have to constantly work through it. It’s a day-to-day challenge, making sure we have a part for each project when we need them, and we’re just juggling the best we can.
Do you see the supply chain issue easing any time soon?
Oliveri: I haven’t seen it get easier. If anything, it’s a little bit more difficult. I’m hopeful that Q3 and Q4, it smooths out a little bit and gets more predictable, but right now I’m not seeing that. We have had to get more efficient with our inventory management because on some projects with long lead times we need to order equipment in advance.
We’re challenged a little bit with our inventory space in our warehouse because our warehouses are really full. What happens is with a lot of the suppliers, you’ll get 90% of the product you need for a job, but you’re missing 10%, which means you can’t start the job till you have all the product. One of the things we’re dealing with is how do we manage the inventory in the warehouse so it stays fresh, it doesn’t shrink.
One of our opportunities is being very creative, looking at our inventory and finding ways to move equipment from one job to the other. Finding ways to program stuff in the offices ahead of the labor, finding ways to start some of the job, and then holding back on the rest of it. It’s really learning how to manage your workforce more effectively. I think we’ve done a really good job of that. If you estimate 100 hours for a job and you don’t manage that effectively, it could easily be 120. We’re working very hard to make sure we hold to our estimates.
Rosenkoff: Going back to the acquisitions, what helps us tremendously is now our service revenue and those contracts. Our numbers are going to look stronger because of the growth we’re seeing in service offerings based on the cross-selling mentioned before. We’re looking solid from the business perspective of that now, being around a 40% service mix rather than pureplay integration.
OIiveri: We’ve focused on M&A that adds that service to our portfolio. Moving forward, we’re really not interested in an integrator that doesn’t have service. Unless there’s something very compelling about their customer base or their location, it’s about service. I want to circle back on the challenges. The other challenge I did not talk about was pricing, dealing with significant price increases in sudden price increases from our suppliers.
As an industry, we need to make sure we stay ahead of that pricing because if you don’t your margins will get swallowed up very, very quickly. You have to be real-time pricing with your customers. The margins are slim to start with and you take on another 7% increase in product. We need to be very careful with price.
Is the service mix mostly service and maintenance or is CTSI pushing managed access control and things like that?
Rosenkoff: We have many customers under contract where we are delivering maintenance and managed services and also break/fix contracts. But areas where we’re seeing continued growth and differentiation is around proactive monitoring, testing and inspecting fire systems. We’re also seeing continued growth around managed access around visual verification via video surveillance monitoring and talkdown capabilities from our security operation centers, which we run and manage ourselves — both security and fire alarm central stations.
Lastly, we have implemented what we call CTSI Subscription Services. This enables us to offer customers the ability to consume technology on a monthly subscription basis, which includes all the maintenance and managed services to keep that equipment running as opposed to making an upfront capital purchase. We’re seeing really good adoption, specifically in the security and the critical workspace solution space around that type of as-a-service model.
What other technology-focused areas is CTSI keen on?
Oliveri: Remote service resolution is very, very important. The reason it’s important is industrywide there is a shortage of technicians. Anything we can do remotely is not only better for the customer because it happens more quickly, more cost effectively, but it helps us with our technician workforce. If I can solve something in 15 minutes rather than a four-hour truck roll, it’s better for us and it’s better for the customer. Also, self-service is a big thing we’re working on so they don’t have to go through an operator every time. They can get the information they need at their fingertips when they need it. It’s about adapting and using technology to serve our customers better.
As CTSI rapidly grows, what are your keys to maintaining customer care?
Oliveri: A couple pieces. One, we need to make sure we don’t disrupt the businesses we purchased. They were very successful at what they’ve done in the past, and we need to make sure we continue to allow them to be successful. With that said, we do have to make sure they integrate onto our IT platforms. We’re not going to disrupt how they operate businesses, but we need to make sure we’re on the same financial packages, we’re on the same CRMs, so we can talk and work together very cohesively.
We have an integration team that’s responsible for making sure these integrations happen. If we’re doing a tougher integration, we may take a year to do it rather than three months. As long as there’s a timeline, we’re good. I’ll give you an example. One of the businesses we purchased really didn’t have a good ERP system or a good estimating system. We converted them within a month, but again other businesses have very robust systems and they may take a year to convert.
Katz: The culture is also important. You may have different mix-match cultures, be it geographical or in the service they provide or how they do business. When we meet with a potential seller, one of the things we say is, “We’re not going to disrupt you, this is not a cost out exercise. This is a way to grow. Your company is intriguing to us and will help us based on the way you continue to do things.” The culture of our people is key to be able to continue to provide the service we provide.
Rosenkoff: Our model is investing in these great companies that we’ve acquired and it is what is making us successful. The companies that we’re acquiring are great companies. I’ve met with each of the leaders of the companies we’ve acquired, there’s common themes around investment in my employees, the loyalty of the employee base. There’s a commitment to solving customers’ problems. Our differentiation is that we can protect and connect our customers and they can rely on us to execute.
What should observers expect to see from CTSI for the balance of this year?
Katz: On the M&A side, we are going to continue. We’re going to continue in 2022 with expansion through acquisitions, probably not as fast as we did in 2021 but close to it.
Oliveri: When I look at what’s important to me this year, there are four things. We’ve talked about all of them: M&A, cross-selling, integration and synergies. Those are what I’m focused on driving the business forward.
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