In the M&A services game, always round up

“You know, I’ve kissed a ton of frogs to reach this point,” accepted Simon Xistouris, delivered with a smile but shaded by a serious undertone.

This is a CEO that has been very active in the mergers and acquisition (M&A) market for the past 2-3 years – always analysing, endlessly evaluating.

If an IT services company was up for sale in Australia, then Xistouris knew about it… the good, the bad and the ugly.

Valuations over-inflated, capabilities exaggerated and egos escalated – the buying and selling circus is often a breeding ground for time wasters and chancers.

So, who wouldn’t be battle hardened to the point of skepticism?

“Honestly, we’ve looked at every mandate that’s gone out – we’ve been very plugged into that,” expanded Xistouris, speaking as Founder and CEO of AC3. “We’ve gone through our fair share of processes, some of which we opted out straight off the bat. Hang on, what are you doing? No, thanks.”

Xistouris is well versed in the M&A dance. But he also knows that it takes two to tango.

“We only need the headlines before going in and having a look,” he added. “Geography, services, company, turnover… don’t worry about it. We have to feel it and we have to know that it’s going to fit into our box.”

Should a viable acquisition target emerge tomorrow, a month or two years from now, the question will always remain the same… “will this round us up?”

In leading AC3 – a Sydney-based managed service provider (MSP) with deep expertise in government and enterprise markets – Xistouris is emboldened by the virtue of patience.

On average, there’s an M&A deal closed within the IT services space in Australia every 2-3 days. In 25 years, AC3 has made three acquisitions.

“Every pivot that we’ve made has rounded us up,” Xistouris expanded. “If we were looking for revenue then we could buy 100 companies because there’s a lot of roll-ups in the market today.”

The approach of acquiring and integrating many small businesses to create one large company is not new, nor exclusive to the IT services sector.

“Great that a business can jump from $10 million in revenue to 20 to 50 to 80 and then 200 but it’s a Frankenstein and doesn’t have a cohesive story,” Xistouris stated. “If it doesn’t pass the pub test then why would we?”

Such common sense is backed by an unwavering resilience and determination to hold the line.

“But why wouldn’t we?” Xistouris responded. “We’re privately owned and are not answerable to anyone so we can wait to find something that strategically fits our business.”

In a game in which the stakes are high and the consequences long-lasting, the ability to distil so much complexity into one single and simple question is a rare skill.

Why would we? Why wouldn’t we?

In other words, don’t confuse AC3 interest and activity with desperation. Many companies acquire for the sake of it with an Amazon Best Seller section dedicated to failed purchases and buyer remorse.

“It’s simple,” Xistouris said.

“We want to be able to go to a customer and say, ‘hey, this is the value that we’re creating’. As opposed to, ‘we’ve bought a company because it’s good for us but it means nothing to you. It’s just more of the same with another random business that’s bolted on’.”

Which is why the acquisition of JDS holds water.

Closed in December 2024, the Melbourne-based business is a specialist provider of IT monitoring (i.e. observability), security, service management, quality assurance and automation.

The company was founded in 2003 and has built market-leading expertise across the Splunk portfolio, enhanced further by the vendor’s recent acquisition by Cisco.

“JDS ticked all of the boxes that we were looking for,” Xistouris explained. “Both companies are remarkably similar. We are both privately owned and operated, with over 25 years of experience.”

When pressed on the specifics, Xistouris said the motivation behind the deal was evident:

1. Acquiring a Melbourne-based business increases footprint in Victoria which is currently an underrepresented geography for AC3.
2. A strong and synergistic customer base aligned to the customers that AC3 are already servicing in government, enterprise and highly regulated industries.
3. Addition of new solution expertise through JDS’ heritage in Splunk and now Cisco offers new routes to market for AC3 in an expanding observability space. Plus, the ability to potentially double AC3’s own ServiceNow practice which is currently going “gangbusters” in market.

“Our shared commitment to staying local and offering secure, sovereign capabilities with exclusively onshore resources across Australia and New Zealand is a cornerstone of our operations,” Xistouris added.

“Those are the top things but beyond that, it’s all about the culture of the businesses. Can we work together? Are we going to integrate well? Are we going to play nicely together? It’s been great to see such alignment.”

Combined, the business will now employ almost 500 people on both sides of the Tasman with offices in Sydney, Melbourne, Brisbane, Auckland and Wellington.

“We are thrilled to join AC3 in this next chapter,” added John Bearsley, Managing Director of JDS.

“Our combined resources and shared vision will create significant opportunities for growth and development for our people, as well as provide our customers access to leading cloud services that complement JDS’ offerings.”

Refusing to play by the M&A rules

In comparison to a chaotic M&A market, AC3 is not acquisitive in nature. Three acquisitions throughout a quarter of a century suggests quality over quantity is the favoured approach from Xistouris and his team.

The first was the buyout of state-owned services provider ac3 (Australian Centre for Advanced Computing and Communication) in late 2013. The move signalled the NSW Government’s shift away from being a provider of IT services to a buyer.

This prompted the rebrand of then Klikon Solutions – the original company name that Xistouris founded in 1999 – to AC3 by the close of 2015.

Fast forward to 2018 and AC3 won a six-month bidding war with Macquarie Telecom to purchase publicly-listed Bulletproof in a deal valued at $24.7 million. The addition of a company with deep expertise in Amazon Web Services (AWS) kick-started a move into delivering hybrid cloud capabilities, from public cloud to private cloud.

And now, JDS.

“It’s super interesting when you look back,” Xistouris recalled. “We privatised a government business in AC3 that ran a very particular public process while our privatisation of Bulletproof was played out on the ASX.”

While unintentional, the business has built some much needed muscle memory in the acquisition space.

“Then it comes down to the integration piece,” Xistouris continued.

“The first time was a little, ‘I think we should do this and maybe we should do that tomorrow’. Bulletproof was a little bit better but upon completion of JDS, we already had a full-blown integration plan and started executing against that.”

With JDS integration underway, the business is now looking beyond in-house synergies to capitalise on external market opportunities.

The true test lies in walking that invisible tightrope between being specialised and being pigeon-holed. Whether public or private sector, is there such a thing as good or bad business?

“That’s a very loaded question and I’ll tell you why,” said Xistouris, leaning forward to emphasise his point.

“When we first bought AC3, we were completely in the commercial mid-market space and were totally dependent on project work. We’d go from banging quarters of smashing it to having nothing going on in the next quarter.”

Hence the intentional acquisition of an IT services company to build out managed services capabilities and create a recurring revenue model.

Problem identified. Problem solved?

“Well no, actually,” Xistouris added. “Because then we were completely skewed in the government space and 85% of our business was attached to it.

“There was a machinery change in government and by 2015, we realised that we’d over-rotated. We had managed services but were over-reliant on government customers.”

Since then, the business has worked against an active KPI designed to strike the right balance between government and enterprise. When one isn’t spending, the other is holding the fort and vice versa.

“When government is spending it’s usually because they’re trying to get the economy going because the enterprise isn’t investing,” Xistouris observed.

“Then when the larger enterprise players are spending, the government is pulling back and collecting their taxes. It’s always a balance and COVID-19 was a good example of that shift.”

As diversification drives decisions at AC3, the bigger picture is never too far away. The business runs a balanced scorecard spanning four key quadrants:

1. Customer: Satisfaction levels, services spread.
2. People: Retention and engagement.
3. Operations: SLAs and outages.
4. Financials: Revenue and profitability numbers.

If all are tracking well then a good year is on the cards. But if the metrics are skewed, then this points to an organisational imbalance.

“We’ve had years when everything but the financials have been good and I was totally cool with that as it meant we were doing everything right and poised to capitalise,” Xistouris noted.

After AC3 acquired Bulletproof however, company numbers went “berserk” and were “off the charts”. Customers were buying into the cross-selling story and the business was realising efficiencies left, right and centre.

“But our people were burning out,” Xistouris evaluated. “We had cut things too far back and it was not sustainable. The numbers were great but people weren’t happy so we reduced our margin profiles to invest more in people.”

It’s not science, it’s an art.

“Like the cockpit of a plane, there’s 1000 knobs to turn and you have to get everything turning at the right amount just to get lift off and make it fly,” Xistouris explained.

‘Why I am the way that I am’

Sat in the boardroom of the company office in Sydney – with the tape recorder rolling and the note pen scribbling – Xistouris is engaging and authentic.

The interview overruns because answers are honest, detailed and in context. No stone is left unturned to ensure strategies are explained and motivations are articulated.

There’s no fanfare, PR support person or a document of pre-prepared remarks… just a water bottle for company. The interview request came from Moxie Insights, not the other way around.

“What you see is what you get,” Xistouris answered.

“CEO is not a job or a title that I coveted, I’d rather be out there solving a problem for a customer. It just so happens that I have to run the business and sit at the top of the food chain.”

Sure. But everyone says that, right?

“If I didn’t have to do interviews, if I didn’t have to attend events – you know, I’d genuinely rather not,” Xistouris admitted.

“People know I’m the CEO but the brand stands alone and that’s perfect. We showcase our people who are doing great work and that’s how it always should be.”

Instead, joy comes from being in the trenches – helping customers, working on pitches and even writing proposals.

Whether being at the sharp end solving a problem, or interrogating the numbers to structure a deal, Xistouris is a hands-on CEO in every sense of the word.

“Give me access to the war file, let me edit it myself – that’s totally my jam,” he acknowledged.

“It’s not about control, it’s just about wanting to add value. We have a very strong team and I like leading from the front to hopefully bring other ideas to the table.

“I’m not as technical as I used to be but I love this part of my job because I feel like I’m in the field and keeping a close eye on the market. It’s so easy to become detached as CEO so keeping my finger on the pulse is important.”

Naturally, the least enjoyable aspect is the mountains of administrative work that keeps the machine turning.

“Ugh,” he interrupted. “Because I don’t like doing it, I’m bad at it. I know my enthusiasm is just not there.”

The need to add value or “do something meaningful” is deeply ingrained in the psyche of Xistouris. A few years ago, he wrote an open letter to staff about ‘why I am the way I am’.

Culturally, and as the son of immigrant parents, “you work hard”. But for some, it goes much deeper than upbringing and background. There’s a psychology behind liking the pleasure of serving.

“Not to be sadistic about it,” Xistouris laughed. “But when I do something and someone says, ‘hey, you’ve done a good job’. I’m thankful for that and it fills my bucket. Simple as that.”

Of course, strong motivation exists to run a successful business that earns enough money to put food on the table and a roof over the head. But it’s not the driving force spurring the AC3 business forward.

“In the early days, customers would call me all hours of the day, 24/7,” Xistouris shared.

“Work on a Saturday night? Cool, no problems. It certainly wasn’t because they were paying mega bucks, it was because I knew I could definitely fix the problem. And the business kind of grew from there.”

Once a month, Xistouris takes out new starters for lunch and the inevitable question is always tabled… “how did you start the business?”

In this scenario, most entrepreneurs have short memories and feel the need to add colour to their founding story. Add a sprinkle of glamour and dial up the drama.

There was no grand epiphany in this tale however. There was no business plan to revolutionise IT services. There was no waking up with a vision.

Good old fashioned service – roll-up the sleeves and get the work done.

“We’ve been cash flow positive from day one, we’ve never been close to the line,” Xistouris confirmed.

Mentally, three core tasks keep the CEO of a business with 500 employees and more than 700 customers busy:

1. Adding value to customers.
2. Setting the strategy, looking ahead one month, three months or even two years.
3. Operational work, escalations and day-to-day business.

A lot of Xistouris’ approach is anchored in the concept of Brilliant Basics which is a company-wide mission statement.

Given the majority of AC3’s work is delivering managed services across cloud, cyber security and ServiceNow portfolios, it’s mission-critical to ensure that foundational work is not neglected.

This includes a commitment to automate processes while creating improved resources and demand management for the team – in other words, understanding when the business is busy and to what degree. By extension, this work also dovetails with plans to improve configuration, quoting and pricing tools.

“If everything and everyone is firing, it just happens,” Xistouris summarised. “If we’re adding value then people want to do business with us and the numbers take care of themselves.”