CSI has returned to growth after refocusing on “what we’re good at”, its Executive Chairman revealed as he opened up on his efforts to return the IBM partner to a stable footing.
Having run CSI between 2012 and 2017, Alan Watkins and his business partner Kevin Lewis were parachuted back into its executive leadership last September to turn the business around.
CSI’s lender Permira Credit called the duo back in after taking ownership of the Big Blue ally in a debt-for-equity swap.
Talking to IT Channel Oxygen, Watkins acknowledged that CSI had to let some “really good people” go in Q4 of 2023 to stabilise the business.
“Sadly, the first thing we had to do was to cut some costs and restructure the business,” he said.
“We set about concentrating on what we were good at.
“If you did a classic Gartner Magic Quadrant of the most valuable customers and the most profitable customers, we had to get ourselves back into that top quadrant. And we weren’t; we were all over the chart, with sales selling almost anything to anybody.
“But we maintained a very solid core of annuity managed services customers – we didn’t lose any customers as a result of the changes.
“We got back that focus and now we’re running a business with a much more realistic cost base and – guess what – we’ve now got growth through 2024.”
EBITDA is set to come in at around £7m in 2024, up from £5.6m last year, Watkins said.
What happened?
Watkins’ association with CSI began 12 years ago when he and Lewis’ Blackhawk Capital investment vehicle acquired it.
The duo transformed it via M&A from a “classical hardware, software and services reseller” into a business generating 80-90% of its top line from annuity revenue streams (tripling revenue and growing EBITDA tenfold in the process).
In 2017, Watkins and Lewis then opted to bring in a larger investor.
In 2020, when the pandemic turbo-charged public cloud growth, CSI was “a little bit slow” to embrace a hybrid cloud model, Watkins conceded.
But having then “invested heavily”, CSI was unable to match that with the required sales growth, leaving the company unable to service its debts, Watkins explained.
“Then of course our friend interest rates came along,” he said.
“As with most private-equity-backed businesses, when they’re highly leveraged, there’s lots of debt.
“When interest rates go up, it’s absolutely fine provided you are continuing to grow and can service the debt, but when you haven’t got that growth and you’ve over-invested, it’s going to end in tears.
“In the middle of ’23, the business decided it couldn’t service its debts and had a conversation with the bank.
“I have to say Permira has been outstanding in supporting the business, because they could easily have said ‘that’s it’. They took the keys and asked Kevin and me to come back in as executives to run the business and turn it around.”
Permira also injected some working capital into CSI, which enabled it “to do what we needed to do”, Watkins added.
Where next?
Going forward, Watkins views CSI’s sweet spot as high-performance computing in regulated or complex environments, with financial services, pharma and research environments among its target verticals.
But CSI is also increasingly positioning itself as a neutral agent bridging the public and private cloud worlds, Watkins said.
“That’s the direction of travel for our business. We’ve created CSI PowerCloud, which in simple terms means you can put public or private applications on that cloud. And we don’t care – we’re comfortable delivering all solutions. for all customers,” he said.
Despite admitting he was initially sceptical of CSI’s chances of building a successful IBM watsonx business, Watkins said CSI has accumulated “two or three very good” AI use cases this year.
“watsonx has proven to be a fabulous B2B platform, as opposed to a lot of these over-excited B2C activities out there that do pictures of cats,” he said.
If market conditions are right, CSI will rejoin the M&A trail, Watkins revealed.
“Because of our DNA, Kevin and I and our management team know how to do good acquisitions and integrate them,” he said.
“You learn so much more from your mistakes”
Reflecting on the turnaround mission of the last 14 months, Watkins – who was employer number one at Cisco UK (serving as its MD from 1990-1996) – said he drew on all his 40 years of experience to stabilise CSI.
“Kevin and I have had all these experiences, good and bad – and you learn so much more from your mistakes than you do your successes,” he said.
“We couldn’t have done this if we hadn’t had all that experience.
“We just knew instinctively what we had to do, and we were prepared to be brave enough to stand up and do it.”
He also paid tribute to the efforts of CSI’s staff.
“Every single person has just been amazing. They trusted us to take them on this journey,” Watkins said.
“One of the most fabulous things I learned at Cisco was to challenge everything, and to always look for ways to do things different, but better,” he added.
“That’s what we’re doing now. We’ve got things back on a stable footing, and it’s growing again. We’ve got sales growth, which is the most important thing. But the market is moving so fast and there are unbelievable opportunities for us internally to automate and modernise our business.
“There are 100 things I’m exceptionally proud of that we’ve achieved in the last 12 months, but there are 1,000 things we still need to do.”
Doug Woodburn is editor of IT Channel Oxygen
