Silicon Valley private equity firm Oval Partners has acquired a stake in Newport, Washington-based managed-service provider Exbabylon IT Solutions.

In the transaction, which the companies characterize as a partnership, Exbabylon will have access to resources shared by affiliates under Oval’s tech portfolio company New Charter Technologies Inc.

Alex Stanton, CEO and founder of Exbabylon, says the relationship with New Charter was in the works for most of 2021. It’s a move to make Exbabylon more competitive, he says.

“We’ve been growing year-on-year, adding staff, focused on happy employees and happy customers,” he says. “We were going to have a really difficult time competing in five years.”

Through the partnership, Exbabylon receives access to capital, and New Charter receives access to Exbabylon’s IT services. Stanton declines to reveal financial terms of the transaction, including how much equity Oval Partners holds in Exbabylon.

New Charter is composed of 15 managed-service provider companies that serve small and medium-sized businesses in 20 North American cities. Through their collective 1,000 employees, New Charter and its affiliates provide information technology support, managed IT services, IT consulting, cloud computing, managed security services, and Microsoft IT solutions.

“Within the group, everybody brings something to the table,” Stanton says. “If there’s an event, or an incident, or a problem with one of these companies, there’s a small army showing up to help them through whatever it is.”

Exbabylon now has access to a larger cybersecurity team and better risk insurance, Stanton says, while retaining its name and operational autonomy. All 37 Exbabylon employees are remaining in their roles.

“It lets us have the unicorn approach,” Stanton says. “We get to stay the size and footprint that we want to, while also having the reach and scale that we need.”

For Exbabylon, that includes the Newport-based company’s experience as an Apple consultant and as a Microsoft Azure Government cloud services provider.

“We have been big as a Microsoft direct partner,” Stanton claims.

Exbabylon serves as a supplemental IT team, especially for clients that have fewer than 500 employees. The company offers IT security services, managed IT services such as monitoring and security updates, and—for local companies—network, server, and computer support and repair services.

Stanton says some local Exbabylon clients include Fatbeam LLC, Litehouse Inc., Inland Power & Light Co., and Spokane Public Radio.

Exbabylon has grown in annual revenue to about $8 million, Stanton says.

The company has grown by about 10 employees in less than three years. To accommodate expected future personnel growth, Exbabylon plans to replace its current facility in Hayden with a new office building in Coeur d’Alene, with construction possibly starting in the next year, Stanton says.

While the Coeur d’Alene office is currently in the design phase, Stanton says Exbabylon hopes to locate the facility on North Schreiber Way, west of U.S. 95, in north Coeur d’Alene. 

“We’ll have room for considerably more staff and a dedicated cybersecurity team,” Stanton says.

Exbabylon also has an office in Sandpoint, Idaho, in addition to its 6,000-square-foot headquarters in Newport, about 45 miles north of Spokane.

Stanton says a model such as New Charter’s is unusual within the industry, but it likely will become a trend.

“I can’t imagine that there won’t be more of this happening,” he says. “You’re seeing it in different markets, like Chicago or New York, where four or five managed service providers all look at each other and say, I know we’re competitors, but we all respect each other, we all do business the same way, maybe we should combine forces.”

Stanton claims that rapid consolidation in the managed-service provider industry typically results in a private equity rollup, in which multiple small companies in the same market are merged or acquired.

Most managed-service provider companies that have changed hands had been owned by people who want to get out of the business, Stanton says.

“The New Charter model is … actually looking for people who don’t want to sell,” Stanton says. “That’s their ideal candidate. They’re not looking for somebody to show up, stick around for six months or a year and then get out. They’re looking for leadership and founders to stay in place and continue to operate exactly as they have been.”

One of the driving factors in the rise of partnerships such as Exbabylon’s relationship with New Charter is the cost of cyber liability insurance, Stanton says.

“Many managed service providers either roll with no or very little true, dedicated cyber risk insurance,” Stanton asserts. “Our ability to have a $5 million policy today is way better than the $2 million policy we had previously. Frankly, even that $2 million policy that we had before was a very expensive policy.”

The resources available to Exbabylon through New Charter already have proven useful, he says.

“We’ve been able to react to a few cybersecurity incidents a little faster, and we’ve been able to bring some additional resources to our customers who have been asking for them. We just didn’t have the staff or the expertise,” he says.

Through New Charter, Exbabylon has access to larger cybersecurity teams. Stanton says cybersecurity positions are especially difficult to hire for.

“It’s really hard to hire a true cybersecurity professional laterally. Most are grown through the ranks organically,” he says. “Even some of the bigger groups locally have dedicated security teams that are outsourced or much smaller.”

While Exbabylon struggles to hire for some positions—a total of five roles currently are open at the company—employee retention is stable, with an average employee tenure of more than five years, he says.

Part of employee satisfaction at Exbabylon lies in the company’s attitude toward sales, Stanton says. With the equity merger, Exbabylon can spend less time worrying about sales, he says.

“We don’t have any dedicated sales staff,” Stanton says. “We’re not a sales culture. We’re a solution growth culture. We’re 100% engineer solution led.”

Transparency has also been a pillar of Exbabylon’s relationship with its staff, he says.

“They know where things are going, because we’re transparent with them about finances, about strategy, about problems,” Stanton says. “The team generally knows what’s happening, why it’s happening, and they get to do a lot of the driving on a day-to-day basis.”

Exbabylon IT Solutions is a registered trade name of Exbabylon LLC. Established in Newport in 2001 as a software and web development company, Exbabylon also offers physical security and business services.

In 2020, weekly business magazine Inc. ranked Exbabylon IT Solutions No. 3,895 on the 2020 Inc. 5000 list, which ranks companies according to the rate of annual revenue growth during a set three-year period. The previous year, Exbabylon ranked No. 3,755 on the list.