Capital Support Group (CSG)’s rather anodyne name, and the confidentiality of its clients’ identities, bely its stature as a leading cloud, IT and hosting service provider to alternative investment managers. Since being co-founded by Nigel Brooks and Dean Foreman in 2002, the firm has quietly grown to 135 staff and 180-190 alternative investment manager clients, which manage over £500 billion, with a typical fund size of at least $1bn (though some high end start-ups are also serviced).
Painstaking attention to detail and client service has earned CSG the respect and custom of a huge swathe of the alternative investment management industry, parallel to converged technology infrastructure provider Six Degrees Group (6DG)’s renown in other industries, including investment banking, where it services seven of the largest 14 players globally.
New ownership for CSG – and 6DG
6DG heard of CSG’s meteoric rise through the IT grapevine and set its sights on what already looks like its most transformational acquisition, which is no mean feat. 6DG founders, including CEO Alastair Mills, have a recurring pattern of successfully building businesses and integrating acquisitions. UK mid-market private equity specialist, Penta Capital, invested alongside the same management team and monetised its investment twice in less than five years. AIM-listed telecom re-seller SpiriTel was sold to Daisy in November 2010, and within months of non-competes expiring the gang regrouped to form 6DG. Four years later in 2015, Penta sold its 6DG stake. “It was a good exit for Penta, which backed the same winning team for a second time,” says 6DG Group Strategy and Marketing Director, Campbell Williams.
This exit was all part of a package that coincided with the purchase of CSG, and paved the way for a beauty parade for the 6DG stake.
Another middle market private equity specialist, Charlesbank Capital Partners of New York and Boston, took over as majority shareholder of 6DG. A private debt facility was provided by AXA’s private equity division, Ardian Private Debt. All three of the investment firms boast impressive records of longevity, having been actively investing since the 1990s. Managing Partner, Dean Foreman, thinks the “additional financial security of our new owner giving more confidence for the long term” helps to explain why CSG won one of its largest ever clients soon after the merger. CSG has also devoted time to educating existing clients about the merger.
“We needed to explain that this is not a buy and strip deal – we are investing for value and new services to grow the organisations,” says Foreman. “A long period of commercial, financial and legal due diligence was needed to complete the deal, but none of this had any impact on the day to day management or the senior management of the company,” he confirms.
Acquisitions – and organic growth
6DG as a firm is younger than CSG. Since launching in 2011 it has grown partly through its thirst for acquisitions. Within its first week or so of corporate life, 6DG made three key platform acquisitions: a cloud hosting business in Birmingham, a voice and a data network business. “The first two years were hectic, with 13 strategic acquisitions adding capability with more services, and more solutions,” recalls Williams.
The next two years saw a hiatus in corporate activity as 6DG bedded down the acquisitions. This was a relatively quiet period of consolidation and integration, building up the operating platform, internal structure, processes and systems, and rolling out new services. Though 6DG is clearly a serial acquirer it has also grown organically, and has recently announced an investment of £12 million “to turbocharge its organic growth,” says Williams. Both avenues are aimed at continuing moving 6DG up the value stack to provide “more professional managed services, running the platforms and keeping them safe and compliant to sleep well at night,” Williams says.
CSG is game-changing
After taking two years to digest the other purchases, 6DG had worked up an appetite for what was to become its biggest acquisition so far in terms of people (but equal first on revenues with CSG turning over £14 million at the time of the deal). More than scale, CSG adds maturity in heavyweight managed services and outsourced services to strategically reposition the combined entity. Williams draws analogies with football player signings. If some earlier 6DG acquisitions were small bolt-ons adding a bit of depth “CSG is a marquee signing in order to change the style of play, and change how the business operates.”
If some former acquisitions were ‘one trick ponies’ that provided bottom-up building blocks for broadening out the offering, now the process starts from the top down and this is the game-changer. The guiding star now is that “we are buying outcomes and solutions with the components already in place underneath,” Williams explains.
SLAs are the competitive edge
He goes on: “CSG is a services business that knits all things together, whereas some previous acquisitions were more product businesses like telephony. It is better to get a suite of services for the customer, and have a vertically integrated, wholly owned and managed, datacentre, through network and location, rather than a third party one, and have all of this under one service level agreement (SLA).”
Williams is pleased to report that “we now have more ability to deliver on SLAs, due to better control, more flexibility on packaging, and less dependency on outside suppliers.”
Though CSG is a technology service provider, clients want to talk to a person not a machine, available 24/7. Service is the over-riding client priority and CSG teams talk to people who design, build and run infrastructure, on a daily basis. Foreman explains that “larger customers do want technical validation diligence but technology has become almost commoditised so is no longer a differentiator. The difference is what happens when it goes wrong – and you then want control over as much as possible to reduce the time taken to fix it. Office 365 is a great price point but you are not in control as you join a queue of hundreds, or thousands, when it goes wrong. In large organisations you do not get the same sense of urgency you get with us.”
6DG and CDG compete more on quality than price (though they have attained significant cost savings for clients in areas such as telecoms and data). “We are not the cheapest but we think we are the best in terms of service so clients will pay a premium,” says Foreman, who does not think hedge funds view CSG any differently from their other service providers. “Customers just want things fixed, expect things to work, and expect predictability in terms of service operations, speed of service and responsiveness.”
To satisfy demanding clients, 6DG has become pro-actively pre-emptive in anticipating potential problems and not allowing them to happen. Foreman recalls how two years ago, customers called with problems that were then fixed. “Now teams are constantly monitoring alerts coming out of servers and every time a threshold is breached, a ticket is raised with the relevant team responsible for outages. This means we catch problems earlier.” 6DG has developed an IT infrastructure library model, whereby “each problem is dealt with individually as a problem, and we then fix the root cause. This improves availability, reliability and predictability,” Foreman explains.
A people business
People are the key asset in a service business. 6DG is an accredited Investors In People (IIP) organisation, achieving Silver level in the UK Government-approved scheme. CSG also prides itself on its unique recruitment process, reflects Foreman: “We have been through a number of iterations in terms of psychometric, maths and English tests.” But softer criteria also matter. “We ask recruits to present and talk to the people they would be working with, to decide if there is a good fit. It is all about sharing responsibility among similar types of people.”
Foreman reveals how CSG will sometimes prioritise criteria. A candidate who ticks all of the technical boxes but lacks customer service skills could be rejected in favour of one with a great attitude even when the latter costs more. The reason is “we can teach people technical knowledge but cannot teach them social skills – and the candidate we hired has been a superstar,” Foreman is delighted to report.
6DG’s hiring process has also emphasised team responsibility. “At the second or third stage we ask for presentations, where candidates will meet at least two people from the team they will be working in, and one or two from other teams. We need the right fit and attitude,” Williams underscores.
These recruitment policies have contributed to relatively low staff turnover. CSG staff turnover has been around 14%, which is typical for staff aged under 35, according to Chapman. CSG has hung onto ambitious staff by promoting 20 from within, last year alone. For instance “we actively seek to promote a first line engineer to a second line engineer,” says Chapman. 6DG’s churn had been a bit higher as acquisitions required some realignment, with duplicative back office centric services such as finance and administration reduced after mergers. “But we never deliberately got rid of sales, support and technology staff,” says Williams.
Quality of service and DDQ bonanza
CSG and 6DG together offer a broad range of services, coming from their heritage and vendor-neutral approach. “Back in 2011 our first differentiator was convergence as few could do data, cloud, hosting, telephony and voice all together. The second differentiator was asset ownership,” recalls Williams. Both 6DG and CSG are accredited by firms including Microsoft, VMWare and Citrix, and have always followed an open architecture model of working with the best technology providers. For instance Phishing is provided by part of NWR Group, as Foreman decided, “it is better to manage than build.”
Adding new suppliers is customer-led: “If a new supplier becomes the de facto standard in a vertical we bring them in,” says Foreman.
The breadth of the offering, asset ownership, and open architecture mean that 6DG/CSG are not dogmatic about pushing particular solutions and can tailor packages to specific client needs. But none of this distinguishes CSG/6DG from other firms anymore. In 2016 it is all about the quality of the offering.
Investors’ due diligence processes afford 6DG and CSG an opportunity to demonstrate the quality of their processes. Foreman has unexpectedly become an expert at completing certain parts of Operational Due Diligence (ODD) questionnaires, including one dedicated to technology that has been offered by AITEC since 2014. “We get more DDQs than we ever had and have prepared standard responses for the AITEC DDQ and for SEC purposes, because we get the same questions again and again,” Foreman reveals.
Responses can cite standards and certifications. For instance 6DG are an ISO9001:2008 accredited company, certifying 6DG’s Quality Management System (QMS) for rolling out managed hosting services worldwide using Cloud Computing Technology (CCT).
A symbiotic merger
The two firms have overlapping areas of expertise, including cloud computing and connectivity, but they need one another – because each gains something new from the combination. The whole is greater than the sum of the parts, as each firm can cross-sell new or additional services to its client base. CSG now offers Unified Communications as a Service (UCaaS), while 6DG now offers Business Continuity and Security Services.
Says Foreman: “We can also now offer our clients UCaaS, which can be sold on a standalone basis or as part of a package. We can cross-sell extra services to existing clients…UCaaS resonates well with how clients consume items, as a per user, per month service rather than in bite-sized chunks.”
Law firm Simmons & Simmons found its telecoms costs were reduced, and productivity increased, by 6DG. And among myriad awards, 6DG’s UCaaS offering has been recognised with the Cloud Excellence Award at the 2016 Avaya Partner Awards.
Managed security services and ISO 27001
Cybersecurity is a red hot topic for regulators in the UK and US, and regulatory examinations are becoming ever more intrusive. CSG’s security risk management offering emphasises business risk management, in the broadest sense. “We talk to clients about processes including the simplest things, such as clear desks and shredding documents, as well as technology. No silver bullet exists,” Foreman explains.
The ISO/IEC 27001 certification is “massively important as it gives credibility. We invested in our own ISO two years ago when nobody had security in their job title. Today we have a Chief Information Security Officer, who was charged with obtaining the accreditation and got it in June 2015.”
The certification covers information security for core platforms (datacentres and networks), billing, data management, fulfilment and support. Williams underscores this, saying “you are not in the races if you do not have it, and can then be disqualified immediately in any commercial tender or process.”
The next accreditation sought will be ISO 20,000 (and 6DG is already halfway there with the ISO 27,000). 6DG has its security roots in the public sector, where it has IL2 and IL3 government accreditations, and finds the Payment Card Industry Data Security Standard (PCI DSS) very relevant as clients can piggy back on this and claim, by proxy, to be compliant. CSG can also assist with robust business continuity and disaster recovery plans, which are essential requirements for both investor due diligence, and regulatory inspections.
Cloud comes in many flavours
Cloud is one area where both CSG and 6DG won awards for their offerings in a world where clients are terrified of security and reliability breaches. 6DG takes pride in offering clients a broad menu of cloud options: private cloud, hybrid cloud, virtual private cloud and cloud managed services – all based on the concept of infrastructure as a service.
Says Williams: “Public cloud, offered by Amazon, Microsoft or Google via browsers, is great for very large scale outs and is multi-tenanted as is virtual private cloud. This means that the spinning disks, sands, virtualisation layers, and virtual machines, use the same infrastructure.” In contrast, private cloud is a dedicated rack with its own hardware, storage, network build out and management. 6DG also offers managed services and hosting, as well as colocation racks where customers buy their own hardware. “It is all about choosing the right infrastructure for the right workload” says Williams. For example, 6DG recently won cloud deals with estate agent Foxtons and payroll software provider Cintra.
CSG has also won awards for its data centres and colocation solutions. Foreman explains how customers “buy point to point links between their location and data centres, and need private connectivity to avoid data bleed.”
CSG has always kept all of its data inside UK borders. “I am a control freak and do not trust anyone to do it as well as we do – and we would not want a security incident outside UK borders,” Foreman explains. Hedge funds generally buy far more data capacity than they need. “Some clients buy ten times what they need at peak, and raising it to one hundred times is not an issue given the speed of light over fibre,” Foreman claims.
Williams mentions how 6DG’s new compliance product, Livestore, was originally designed as a compliance tool to help with FCA (and SEC) requirements, such as electronic storage of emails, social media, fixed and mobile call recording, “but is now seen as a valued added solution.”
Clients can pick and choose which services to take, but Foreman feels “there is often a core of services that customers take, including hosting, networks, and monitoring. Then security services are often added with emails kept forever.”
The mix changes with market demand as “our account management team are babelfish, who sit with hedge fund managers and COOs, and listen to what they want, including business and regulatory issues,” Foreman says.
For now, 6DG and CSG still have separate websites. Slowly, 6DG will phase out the CSG brand and also the UHT acronym for Ultra High Touch service, which brings back memories of sterilised milk. Though the integration of CSG will be a momentous milestone, 6DG is still on the lookout for accretive acquisitions that help it to fulfil customer demands for results, strategy and outcomes.