Start-Up Stratos' Step One: Acquire Nexus Information Systems

Stratos came out of stealth mode earlier this month with the acquisition of the Minnetonka, Minn.-based storage and virtualization solution provider and plans to build a services firm concentrating on smaller and midrange customers in the central and southeastern U.S., said Bret Kidd, president and COO of Stratos, Atlanta.

"Stratos was founded to build a company based on managed services," Kidd said. "We're focused on a hybrid business model where on-premise infrastructures work side-by-side with public and private clouds."

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Navigation Capital Partners, Atlanta, founded Stratos with the goal of bringing together several companies in the heartland to build a major services provider, Kidd said.

"To jump in and acquire large existing companies in this space would be more expensive," he said. "And many of those kind of companies are not on the same path we're on."

Stratos' focus is on hybrid infrastructures, which Kidd admitted is nothing dramatic. The company's differentiation, however, is its ability to connect users with multiple technologies.

"A lot of companies, especially the bigger ones, are so focused on one part or other of the business that it becomes disconnected from the customer," he said. "For instance, a company offering low-touch remote services moves away from the high-touch model of having people on-site. We want to provide both."

The sweet spot for Stratos is midrange customers, which larger service providers often ignore and smaller ones cannot serve with the right capabilities, Kidd said.

Because of that focus, Nexus was its first acquisition. Kidd said Nexus, which last year had revenue of $32 million, has a strong storage and virtualization practice and already has been moving into cloud services. Nexus also has a data center and a network operations center with plenty of unused capacity, giving it the ability to grow both in the physical and the cloud IT markets, he said.

With Nexus as a foundation, Stratus plans to gradually expand toward Houston and toward Florida via other solution provider acquisitions, Kidd said.

"Our primary growth in the beginning will be inorganic," he said. "We want to get to $200 million in revenue within three years. Our intent is to buy at least two other companies with similar size and complementary skills and customer experience. Once we get to a critical mass of $200 million, we will shift to organic growth."

Navigation Capital Partners, which is backed by such investors as Goldman Sachs, has the capital needed to fund the expansion, Kidd said.

"This is very much a growth strategy," he said. "We like what Nexus has been doing. We want to grow what they've done before while growing the services and managed services, and then moving up the stack with new offerings."

Keith Norbie, vice president of sales at Nexus, said Stratos has no plans to destroy the Nexus business model but instead will use it as the foundation on which other services such as cloud hosting will be formed.

"We're unlocking opportunities we couldn't touch before," Norbie said. "It's tough to be sitting at the customer's table seeing an opportunity we didn't have the resources to pursue."

Navigation Capital Partners has brought in a strong management team at Stratos. Kidd is a veteran of EDS and Hewlett-Packard and most recently served as general manager of HP's Global Public Sector Group. He is joined by CEO Ron Farrell, a technology entrepreneur, and Executive Vice President Ken Brown, who spent time at EDS and HP, where he launched HP's Global Hospitality practice.