Intermedia ‘acq-hires’ Zlago

Contact: Ben Kolada

Less than three weeks after its own sale to private equity firm Oak Hill Capital Partners, mass-market hosting provider Intermedia has already inked its first acquisition, picking up complementary vendor Zlago. From our view, this deal looks like more of an ‘acq-hire’ than the typical bolt-on purchase that PE-backed hosting providers are known for. Overall, talent acquisitions are rare in the hosting industry, but this transaction is particularly notable given Zlago CEO’s past, and the impact he could have on Intermedia’s future M&A.

Talent certainly seems to be the primary driver for this deal. Indeed, Intermedia goes so far as to highlight Zlago’s ‘cloud expertise’ in the press release announcing the move. But while talent acquisitions throughout tech M&A tend to involve engineers, we wouldn’t be surprised if the talent that Zlago provides is more M&A-focused. Zlago CEO Michael Gold, who joins Intermedia as president, was previously CEO of cloud services vendor Sphera, which he led through to its sale to Parallels in September 2007. We expect that Intermedia and Oak Hill Capital will draw on Gold’s previous M&A experience to target higher-end cloud providers as it looks to grow through M&A.

We’ve noticed that PE firms tend to refocus their mass-market hosting companies on more specialized, higher-end cloud services. This strategy most recently generated champagne-popping returns for Nazca Capital, which maneuvered acens Technologies through its four-year ownership to higher-end cloud hosting services. That deal played out particularly well for Nazca, since we gather that acens’ sale to Telef√≥nica provided the Spanish buyout shop with a greater than 100% return on committed capital. We’ll have a full report on the Zlago purchase in tomorrow’s Daily 451.