"The fact is that we’ve entered a world where businesses need to embrace the reality of remote work, cloud-based solutions, and increasingly digitized workflows."
Sean Frank is the Founder and Managing Partner of Wall Street-based asset management firm Cloud Equity Group. He is also widely recognized as an M&A expert, mentor to young entrepreneurs, captivating keynote speaker, and avid philanthropist.
Although he is one of the youngest investment managers in New York, Sean’s incredible success draws on more than 20 years of expertise and knowledge in originating, structuring, and managing investments. He started his career as an entrepreneur and businessman at the age of 12, and over the past two decades, he has accrued significant expertise in all aspects of private equity investing, particularly with leveraged buyouts. He has now become the go-to expert on investment opportunities across a broad spectrum of control ownership and direct lending opportunities.
In founding Cloud Equity Group in 2013, Sean became the first manager of dividend-focused investment vehicles in the web and cloud hosting infrastructure sectors. Using his passion and decades of experience in M&A, he led the firm’s transformation from an independent sponsor-based model to investing out of discretionary investment funds both in private equity and private debt asset classes.
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Table of Contents
We are thrilled to have you join us today, welcome to ValiantCEO Magazine’s exclusive interview! Let’s start off with a little introduction. Tell our readers a bit about yourself and your company.
Sean Frank: I am the Founder and Managing Partner of Wall Street-based asset management firm Cloud Equity Group. We’re a boutique investment management company that specializes in leveraged buyouts of tech-enabled business service providers. We’ve also recently launched a direct lending business that provides strategic capital to other businesses within the same sector.
I started my career as a young entrepreneur at the age of 12 when I founded a web hosting provider business that really focused on delivering high-quality service to its customers. Over time, the business grew quite substantially, and I started acquiring my competitors. By the time I had graduated from university, I had probably completed close to 20 acquisitions.
I learned a lot through my first-hand experience building up an international web services business. One of the important things I discovered is that I loved the M&A side of our growth strategy and really had more interest in doing deals than in being a CEO. With that in mind, I founded Cloud Equity Group in 2013 with the intent of buying and selling the same types of businesses that I had been acquiring for the previous decade.
At the time, we operated as an independent sponsor and completed purely unlevered transactions. We would find an undervalued business, raise capital for the deal, close the transaction, generate some sort of value for the business, and then sell the business to deliver a profit to our investors. Since then, we’ve grown significantly – both in terms of the types of deals that we do and the structure in which we manage our investments. Today, we invest out of committed investment funds and operate two core strategies – leveraged buyouts in the lower middle market and direct lending.
At Cloud Equity Group, I act as the CIO for all investment decisions across the firm, managing the portfolios of its high-net-worth individual, family office, as well as institutional investor clients. In addition to working alongside a team of investment professionals in identifying, buying, managing, and selling controlling interest in high-potential businesses, I also oversee the firm’s direct lending practice.
2021 and 2022 threw a lot of curve balls into business on a global scale. Based on the experience gleaned in the past couple years, how can businesses thrive in 2023? What lessons have you learned?
Sean Frank: Global geopolitical problems, ongoing socio-economic and political unrest and violent uprisings on US soil, the growing climate change crisis, the Covid-19 pandemic and resulting price increases and supply chain issues, massive layoffs subsequently followed by labor shortages in certain sectors, the federal spending and debt ceiling, and the Federal Reserve’s rate hikes to slow high inflation hurled a slew of curveballs at the business and financial sector and the economy at large over the past two years.
Yet, even as global GDP and growth slow, opportunities for investment abound as diversified and innovative strategies within key sectors create disruptive trends that can be leveraged.
For instance, in the managed services provider sector, the Covid-19 pandemic propelled high business demand for remote-working and hybrid working environments as well as for remote and cloud-based infrastructures. Coupled with the growing requirement for compliance and cybersecurity amidst a rising focus on data safety and security, MSPs have seen their businesses grow at accelerated paces. This has also spurred M&A activity within the MSP, web and cloud hosting sectors as companies scale up their value propositions and become attractive within the market.
Several industry challenges will need to be addressed as investors and firms plan ahead for 2023, but for those looking for non-correlated and differentiated niche strategies that are attractive in today’s macro-environment, plenty of untapped opportunities exist.
The pandemic seems to keep on disrupting the economy, what should businesses focus on in 2023? What advice would you share?
Sean Frank: The fact is that we’ve entered a world where businesses need to embrace the reality of remote work, cloud-based solutions, and increasingly digitized workflows.
The way the workforce is being managed, the way we engage with customers and clients, and the way operations and compliances are being streamlined have changed forever. There’s no going back. Even businesses that were once traditionally brick-and-mortar have needed to modernize in recent years and adopt a new way of operating.
In general, utilizing cloud computing and remote connectivity has allowed many businesses to streamline their operations and automate many manual processes. This results in greater speed, less waste, and more focus on revenue-generating activities. This also often brings a security advantage as businesses that are in the cloud, and presumably have that cloud infrastructure properly managed, are better prepared for and more resilient to the proliferation of cyber threats in the current environment.
Now that the last significant wave of the pandemic and the requirement for social distancing restrictions needing to be enforced is hopefully behind us, some businesses may be inclined to retrench on their digital transformation plans and revert to old habits. Rather than backtracking, now is the time for businesses to double down on their digitization and capitalize on the significant value that it brings. This can not only enable a business to have a strong defensive position in the event of a future lockdown but also allow for stronger growth potential.
In the current recessionary environment, controlling costs is very important and one way to do this is by ensuring operational efficiency – a task for which digital solutions are perfectly suited. One of the biggest efficiency plays is automation. By leveraging cloud computing to enable robotic process automation, businesses can automate certain types of work processes to reduce the time spent on costly manual tasks and to reallocate those resources elsewhere.
Additionally, businesses will need to move from gut-instinct-based decisions to data-led decisions to keep their heads above water amidst the growing tide of troubles washing over the globe. They will need to gather factual data and statistics, aggregate and visualize this data, and accrue actionable intelligence through advanced analytics to stay at the forefront of their industries. With cloud computing, the economics are simple – the same work can be performed faster and with fewer mistakes.
The growth of cutting-edge technologies such as machine learning (ML), artificial intelligence (AI), the Internet of Things (IoT), blockchain, as well as VR, AR, and the metaverse will further boost businesses – at least those who invest the time and skills into them.
In addition to M&A, outsourcing opportunities will abound for businesses looking to make the most of skills and technologies in other regions within the US or globally, which may otherwise be missed or exploited by competing companies. By leveraging remote connectivity, businesses can take advantage of a much larger hiring pool to fill open positions. In the current job market, it is particularly difficult to find and retain strong talent. With the acceptance of remote connectivity, you have a significantly broader labor pool for positions that need to be filled. This allows businesses the opportunity to get better talent, and potentially at a better price.
Even from a non-technical perspective, retracting on previous efforts to digitize would be a poor business decision. The past two years have permanently reshaped the way we live and work. It’s important for businesses to accept behavioral changes that have taken place during this time and new emerging customer demands – notably the desire to interact with businesses remotely.
How has the pandemic changed your industry and how have you adapted?
Sean Frank: The pandemic brought long-overdue attention to the web and cloud-hosting space as well as managed service providers. From IT products, solutions, and services to outsourcing, digitized operations, and the increased need to address a possible “cyber-pandemic”, we’ve seen a tremendous uptick in demand for most tech-enabled service provider businesses.
This uptick is attractive from an investment perspective, both because of the accelerated increase in profitability of these businesses, but also because it’s an industry that continues to prove its resiliency during down cycles. These attributes have in turn resulted in increased interest from investors and private equity managers alike.
In 2022, we had one of our busiest years ever in terms of the capital that we’ve deployed within this sector. We are incredibly bullish on all the service providers that help enable or support this wave of digitization in some way. In fact, in addition to making control equity investments as we’ve always done historically, we started building out a direct lending business to provide financing to businesses within the sector as well.
What advice do you wish you received when the pandemic started and what do you intend on improving in 2023?
Sean Frank: The most important lesson that the pandemic has taught us is that the absolutely unexpected can happen at any moment, and it is of paramount importance to invest in the right people, processes, partnerships, technologies, and resources to keep businesses and industries resilient.
Online business surged higher than ever, B2B, B2C, online shopping, virtual meetings, remote work, Zoom medical consultations, what are your expectations for 2023?
Sean Frank: I think that inflation and rising interest rates will likely continue to be a major challenge for businesses across the board for the foreseeable future, and that recession-like conditions will continue well into 2023.
Credit markets have already started tightening, which I believe will slow down M&A activity as the cost of capital increases and the amount of leverage lenders are comfortable with decreases. This will naturally cause certain types of investors to pause on making new investments, while also driving down the overall valuations of businesses.
That being said, for firms like ours that have a fiduciary duty to continue generating returns throughout the down cycle, we’ll be able to find very good value buying opportunities. I’m hoping that 2023 will be our best year yet in terms of the number of quality deals we’re able to source and close.
How many hours a day do you spend in front of a screen?
Sean Frank: About 14 hours a day – taking both the desktop, laptop, and the mobile screen into consideration.
The majority of executives use stories to persuade and communicate in the workplace. Can you share with our readers examples of how you implement that in your business to communicate effectively with your team?
Sean Frank: Stories, analogies, metaphors, and anecdotes from one’s personal life will always be at the core of effective communication. In a world that’s increasingly demanding authenticity, approachability, and affability, it’s become absolutely important to share one’s message in a human manner.
Successful and captivating storytelling within conversations not only makes the message more attractive and relatable but also acts as a catalyst for organizational change and getting things done. I often like to share with my team stories from when our firm first started – a time when we were working insane hours to diligence the heck out of perspective investment opportunities and then go on road shows to try to raise capital for the deals.
It was a tremendous amount of work at a time when we weren’t really making any money and the stakes were incredibly high. One bad deal and there would be no future for our firm. Fast forward to today, Cloud Equity Group, through its various investment portfolios, provides jobs for close to 200 people and strives to provide high-quality services to hundreds of thousands of clients across the world.
By sharing such stories about how challenging it was to get to where we are today, and the positive impact that our investments are making on so many people’s lives, I feel that I’m able to motivate our team and inspire a deeper connection to our purposes and brand. With this stronger connection, the team works that much harder to make sure we do the best we possibly can.
Business is all about overcoming obstacles and creating opportunities for growth. What do you see as the real challenge right now?
Sean Frank: Over and above previously listed market disruptions, numerous challenges need to be addressed from diverse client and customer demands to cut-throat competition, compliance requirements, and changes in cultural mindsets.
Yet, one of the greatest obstacles that need to be addressed is the growing requirements for actionable business intelligence, drawing true value out of Big Data, as well as hiring skilled and knowledgeable talent that aligns with company values.
In 2023, what are you most interested in learning about? Crypto, NFTs, online marketing, or any other skill sets? Please share your motivations.
Sean Frank: There are a lot of cutting-edge technologies that can feed into valuable long-term investments. In 2023, I plan to focus on re-evaluating the long-term potential for crypto. I’ve always been relatively bearish when it comes to cryptocurrency and have historically seen its widespread public interest as a fad. When it first became popular, the common notion was that it was the next best thing because it was decentralized and completely anonymous.
There was also major public appeal because of all the stories of early investors who had made millions taking a chance on new cryptocurrencies. I remember plenty of people going “all-in” stating how this would be the future and that it would replace hard currency altogether.
While it remains true that cryptocurrency is decentralized, I think over time all the other positive attributes people had commonly cited have been disproven over time. With respect to anonymity, today there are forensic cryptocurrency investigators that can analyze the blockchain and “follow the money” from just about any transaction to real people.
And although it does remain true that there are people who have made millions of dollars with early bets in emerging tokens, this is an incredibly small percentage of overall investors. However, despite all this, my pessimistic view on crypto when it first started becoming mainstream was more around its viability and in particular the feasibility of it actually replacing hard currencies like the US dollar.
For two main reasons, I never believed that cryptocurrency would become mass adopted as an “alternate” to the US dollar. I see two fundamental purposes of currency that even the most popular coins like Bitcoin will likely never fill. First, people want to know that their currency maintains its value.
When you go to bed each night, you have peace of mind that the money in your bank account will still be there when you wake up the next day. With crypto, the valuation is driven by market forces and ever-changing. In a downside scenario, this volatility can have a detrimental impact on people’s ability to budget and save. Second, currency is needed for commerce. Even today, with few exceptions, crypto cannot easily be used for most purchases in everyday life.
Still, despite many aspects of crypto not living up to much of the early hype that helped it gain such widespread popularity, it’s still incredibly popular even amongst the most unsophisticated and non-technical investors.
While I don’t generally see it as a future replacement to hard currency, I do hold crypto as a small portion of my overall personal investment portfolio. I’d like to learn more about how the public’s perception of it has changed today and reassess my view on the value that it may hold in the future.
A record 4.4 million Americans left their jobs in September in 2021, accelerating a trend that has become known as the Great Resignation. 47% of people plan to leave their job during 2022. Most are leaving because of their boss or their company culture. 82% of people feel unheard, undervalued and misunderstood in the workplace. Do you think leaders see the data and think “that’s not me – I’m not that boss they don’t want to work for? What changes do you think need to happen?
Sean Frank: This is an excellent question. Quite often, organizations create and publicize mission statements and company values only to forget about them as time progresses or when the market turns sour.
There’s nothing more important within businesses than People. Processes are built around People. Partnerships are built around People. Resources fail to be optimized without the right People. Technologies fall flat without People.
This is why company culture, agency in the workplace, upskilling and reskilling opportunities, equity and diversity and inclusion, employee feedback, mental health, work-life balance, and prospects to grow vertically and horizontally while earning more in line with inflation will attract and retain the right people and talent – and with the existing skills gap in the market, this retention of human resources will separate successful firms from those that drown in “quiet quitting” and the “Great Resignation”
On a lighter note, if you had the ability to pick any business superpower, what would it be and how would you put it into practice?
Sean Frank: The ability to absorb, analyze, interpret, and action all the data on the planet.
Data is currently the new oil. Data is the biggest tsunami hitting the globe. The time to keep one’s head above water, learn how to swim, or even ride the wave has passed. The time has come to learn how to direct and bend the wave in a way that benefits the firm, economies, and the world at large
What does “success” in 2023 mean to you? It could be on a personal or business level, please share your vision.
Sean Frank: To continue building strong companies that provide jobs for Americans and valuable services to end-users.
Jed Morley, VIP Contributor to ValiantCEO and the host of this interview would like to thank Sean Frank for taking the time to do this interview and share his knowledge and experience with our readers.
If you would like to get in touch with Sean Frank or his company, you can do it through his – Linkedin Page
Disclaimer: The ValiantCEO Community welcomes voices from many spheres on our open platform. We publish pieces as written by outside contributors with a wide range of opinions, which don’t necessarily reflect our own. Community stories are not commissioned by our editorial team and must meet our guidelines prior to being published.
