A marquee Ottawa IT consulting firm has merged with an Oregon cybersecurity and tech services enterprise in a deal it hopes will be a springboard into the U.S. market.
Grade A said Wednesday it’s joining forces with Portland’s Convergence Networks to create a new company. Terms of the deal, which closed last month, were not disclosed.
Boston-based private equity firm Riverside Partners is the majority shareholder in the new combined firm, which is officially incorporated in the U.S. and will maintain its offices in Ottawa and Portland. Grade A’s founders, including CEO Mat Lafrance and chairman Allan Ghosn, retain an ownership stake in the new entity and will continue leading the company’s operations in Canada’s capital.
It’s the latest growth play for Grade A, which was founded 18 years ago and is now the city’s second-largest managed services firm with about 90 employees. Lafrance said the merger gives the companies the financial backing to pursue more M&A opportunities as they look to broaden their service offerings and expand their customer bases.
"We’ve been thinking about this for a while. We wanted more growth opportunities."
“Although we’re one of the largest technology players in Ontario, from a global perspective, we’re still relatively small,” he said.
“We’ve been thinking about this for a while. We wanted more growth opportunities. We wanted to be able to have specialist roles in the organization that we could never afford to do. We’re super excited.”
Lafrance said Grade A talked with several private equity firms before deciding to partner with Riverside, which has raised more than $1.6 billion in its 30-year existence and targets firms in the tech and health-care sectors.
The Carleton engineering grad used a sports analogy to describe Riverside’s role in the new enterprise. He likened the Boston firm to the owner of a football team who is eager to build a winner but leaves the game-day decisions up to the coaches and players.
“They’re not looking to be the quarterback,” Lafrance said. “They want to make sure we have the best tools, the best strategy, the best people on the team to succeed.”
The merger marks the culmination of a process that began about 15 years ago when Grade A’s founders bonded with Convergence chief executive Eric Gray and his colleagues at an industry conference. The Ottawa firm and the 60-person West Coast company followed each other’s progress, often sharing best practices and comparing notes on growth strategies.
“It was honestly like we were the same company, just in different regions,” Lafrance said.
The two sides started seriously contemplating a corporate marriage last year before the COVID-19 crisis put a pause on the discussions. But when the massive shift to remote work suddenly ratcheted demand for IT and cybersecurity services to another level, the negotiations progressed quickly.
“We’ve now got something that would have taken us five, 10 years to develop as a full security suite that we can offer our clients,” Ghosn said.
He said Convergence specializes in “government-grade” cybersecurity software that’s become a virtual must-have for even smaller companies that were forced to move their entire operations online practically overnight.
“There are nation-states that are attacking customers,” Ghosn said of the proliferation of cyber-threats in the pandemic world. “Show me another industry that has that kind of a mountain to climb. We really have to move quickly here and make sure that our clients get the locks on their doors first.”
Branching out is nothing new for Grade A, which was launched by “tech nerds” Lafrance, Ghosn, Christian Ste-Marie and Mathieu Bouchard in 2002 to provide at-home computer services.
Several years ago, the firm launched a social media management arm called Grade A Digital, which it sold to Ottawa marketing agency Xactly Design & Advertising in 2018.
Meanwhile, its offshoot custom software development firm, Grade A Labs, devised a last-mile delivery platform that’s now the flagship product at a new startup called Trexity. The bootstrapped company’s revenues have skyrocketed during the COVID-19 crisis and the firm is now on the verge of landing a seven-figure seed funding round.
“We’ve been like a couple of squirrels here busy in the winter, if you will,” Ghosn said of his team’s entrepreneurial pursuits.
But Grade A has been a purely local success story up to now. Its founders are hoping the merger will help it make its mark on a much larger stage.
“We've seen sustained growth, but now we can start to look at (fuelling) larger growth through acquisitions and additional mergers,” Lafrance said, citing the U.S. Eastern Seaboard and Western Canada as the first territories the new firm is scouting out.
“Now that we’ve sort of bookended North America with Portland on one side and Ottawa on the other, we're going to fill in the middle.”