Meritage Leads Growth Equity Investment in Peak

PeakWe were particularly enthused to announce our investment in PeakColo earlier this week.   Peak is a leading provider of cloud computing services, focused on the infrastructure as a service (IaaS) layer of the cloud computing value-chain. Peak serves large enterprise customers, which it recruits through a white-labeled channel strategy leveraging the existing enterprise account relationships of value-added-resellers and other enterprise IT channels. The Company maintains computing centers in Denver, CO, Seattle, WA and the United Kingdom. As a side-bar, Peak’s Seattle, WA presence is hosted in our data center portfolio company, Digital Fortress’ Seattle area data center.

PeakColo fits nicely into our Fund III Growth Equity profile as evidenced by the Company’s substantial growth over the past couple of years which was accomplished while the Company maintained a breakeven EBITDA position. As indicated in the Company’s press release announcing the investment the funds will enable Peak to meet growing customer demand in the Company’s current geographic markets and also enable the Company to expand into additional markets.

Since the formation of our Fund III, we’ve had a stated objective to add a cloud-computing investment to the portfolio. Our investment in PeakColo is the result of proactive efforts to make that happen. Over two years ago, our colleague Tom Simonson identified PeakColo as a prospective investment in the sector. He and Derek Pilling cold-called on CEO, Luke Norris, to learn more about PeakColo’s business.  At the time, Luke Norris, the Company’s CEO was narrowing the Company’s execution focus but had not yet built the business to the minimum revenue scale required to meet our investment criteria. Adding to the positive tone of the initial discussions, we learned that Mark Hughes (previously an executive at InFlow, the Chairman of Digital Fortress and a Fund III entrepreneur’s fund investor) was on the Board of Directors of PeakColo.

Over the next two years, Derek and Luke had breakfast nearly every other month; Luke running business challenges by Derek; Derek providing counsel and helping Luke to refine Peak’s execution focus. During this time, several other investment firms, including much larger private equity firms took a run at making an investment in or acquiring PeakColo. We waited patiently for the Company to prove its model and for the other prospective investors to disqualify themselves. This summer, when PeakColo delivered a 100% year-over-year revenue growth trajectory and reached the scale to qualify as a Meritage’s Growth Equity criteria, Derek brought Luke in to present to the Meritage investment committee and we delivered a term sheet shortly thereafter. The completion of our investment in PeakColo affirms that our model of establishing and maintaining relationships with successful entrepreneurs coupled with a clearly defined set of investment criteria works exceeding well.

Core to our thesis about the PeakColo investment is the fact that the information storage and computing requirements of most all enterprise customers are growing rapidly. Further enterprise customers are increasingly adopting cloud computing solutions which meet their needs for scalability, redundancy and security. Finally, we believe Peak’s white-labeled go-to-market strategy is unique and brings the potential for massive scale is the Company’s channel partners activate demand in the market.

Luke and the Company have established mutually beneficial relationships with critical infrastructure, software and equipment vendors who frequently invite Luke to share the PeakColo story at industry events. For example Luke recently presented alongside Dave Hitz, one of the Founders of NetApp, to over 5,000 CIO and IT executives at VMWorld 2012 in San Francisco.  As part of our checkings I met with Dave Hitz and he shared his support and enthusiasm for PeakColo.  He also shared his belief that PeakColo’s offering was in great demand by medium sized enterprises allowing CIO’s and CFO’s to rent storage and compute capabilities based on their current needs rather than making large capital investments in storage and compute infrastructure potentially years in advance of full utilization.

We were pleased to lead the structuring and syndication of the PeakColo investment. Once Meritage and PeakColo were aligned on a mutually acceptable investment structure we shared the opportunity with Sweetwater Capital, led by Bill Marraccini. Bill and his firm are equally enthusiastic about the prospects of the Company.  As you may recall, Sweetwater Capital is currently a co-investor in Digital Fortress, and previously co-invested with us in the successfully exited Fund III Company, NewPath Networks. Jack Tankersley will join me on PeakColo’s Board and will serve as its Chairman.   Both Jack and I look forward to working with Luke, and alongside Bill Marraccini to make PeakColo a wildly successful business.