Pivot Financial invested in PomeGran Inc. in 2021 to help fuel its ambitious acquisition strategy to achieve rapid growth.
We caught up with PomeGran Chairman, Dr. Kalai S. Kalaichelvan, to learn more about PomeGran’s growth plans and the role non-dilutive, debt-based financing plays in achieving its goals.
The PomeGran group of companies
Kalai has over 25 years of experience working in the telecommunications industry. When he left his role as VP of Wireless at Nortel Networks in 2001, Kalai went on to become a serial entrepreneur, founding and growing several successful telecom companies, including a rural internet service provider (ISP).
His first company IPine was sold to Nakina and then to Nokia in 2005, and his second sold to International Rectifier in 2011. Today, Kalai is focused on PomeGran Inc.—the parent company of a growing group of managed and internet service provider brands including EION Wireless, CochraneTel, Canquest Communications, and Digicom.
A strong past, an exciting future
EION—now part of the PomeGran group—was founded by Kalai more than 20 years ago.
EION develops private wireless networking equipment for organizations that require an extra level of privacy, security, and reliability. Today, EION’s high-reliability, mission-critical technology powers the private networks of police, technology and education campuses, oil and gas companies, and over 40 airports across India, Saudi Arabia, Latin America, and North America including JFK, LAX, Dallas Fort Worth, Minneapolis–Saint Paul, and Vancouver.
Seven years ago, Kalai and his management team decided to adapt its strategy to focus on building recurring revenue streams to bring greater operational stability and financial predictability to complement EION’s strong product-based business. After the successful creation of IceNet Wireless to provide broadband to rural Newfoundland, Kalai got involved with PomeGran to accelerate the recurring business through acquisitions.
Accessing capital to accelerate growth
To grow rapidly and effectively via acquisition, PomeGran required access to external capital. Since the company was in the early stages of growth, the team decided that equity-based capital would be the wrong fit. Instead, they began researching non-dilutive lenders.
PomeGran had a burgeoning recurring revenue business—but it also had valuable assets, so it was in a good position to access debt to fund its acquisitions.
“In 2021, we already had a very large asset base. Building communications towers is like building real estate. We had almost 100 towers across Newfoundland and were serving 120 communities, when we went looking for capital to fuel our growth,” said Kalai.
PomeGran met with Dan Flaro at Pivot Financial and was impressed with the lending options available to them.
We really liked Pivot Financial’s business model and—more importantly—we liked Dan. He understood our growth plan and was very supportive, so we worked out a financing deal that enabled PomeGran to acquire another company,” said Kalai.
Why debt over venture capital?
Kalai had experience with equity-based venture capital in his previous startups. In his opinion, there’s a right time and a wrong time for venture capital.
“Equity-based venture capital can create lethargy as people throw money at problems instead of thinking about the right solution. Conversely, debt-based capital puts discipline in a company. By design, everyone has to operate efficiently and be accountable for their budgets,” said Kalai.
For PomeGran, debt was a better option because the team wanted to create efficient processes, build a sustainable model, and retain control of its business.
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Rapid growth by acquisition
PomeGran used Pivot Financial’s debt-based capital to acquire CochraneTel, a 100-year-old telecom provider serving the rural township of Cochrane, in northern Ontario. At the time, the Town of Cochrane understood that they needed a strong financial and operational partner to allow CochraneTel to implement new technologies to serve its citizens better.
The town didn’t want a bigger telecom company to acquire CochraneTel, in case they took a decision to shut off rural services in the future. PomeGran provided the perfect solution.
“That was a really significant milestone for us as a company. It was the beginning of our new strategy to grow our recurring revenue business through acquisitions,” said Kalai.
Creating efficiencies to make 1+1=3
PomeGran’s strategy was to acquire three companies over a short period of time to gain maximum efficiency. “If you acquire and integrate one company at a time, the team gets fatigued. When you do it all at once, the team is energized and there are efficiencies to be gained,” said Kalai. “Pivot’s capital allowed us to do that.”
Through Pivot, PomeGran also acquired Digicom, in Alma, Quebec, and funded a third acquisition of Canquest Communications in southwestern Ontario using its own cash.
The acquired companies maintain their distinct brands under PomeGran. PomeGran collaborates with the companies to upgrade technologies or processes, where needed. Each of the acquired companies is onboarded to PomeGran’s custom MosaiQ platform to streamline the delivery of managed and internet services. PomeGran also built a centralized, state-of-the-art Network Operations Centre in Toronto, creating more efficiencies for the group.
PomeGran has greater purchasing power than its individual subsidiary companies, so can save them money on contracts. For example, PomeGran has recently signed deals that will provide group companies with 20% savings on services and equipment, which would not have otherwise been possible.
“We are creating a playbook for these companies to follow, but each company maintains its own identity and has its own growth path,” said Kalai. “We can also do a lot of cross-pollination between the companies, by rolling out a service offering in one company to test its performance in the market and, if it is effective, roll it out to the other companies.”
In this way, PomeGran is adding incremental service offerings efficiently and boosting the average revenue per user (ARPU) across all its companies.
The acquisitions are delivering more than the sum of their parts in terms of revenue and earnings. In fact, within just nine months, PomeGran increased its subscriber base by 700% and revenue by 500% while maintaining an impressive EBITDA percentage.
It attributes much of its success to the flexible debt provided by Pivot Financial.
Thanks to the injection of capital from Pivot, we could implement our strategy and achieve significant scaling growth,” said Kalai.
What’s next for PomeGran?
Kalai and his team are laser-focused on creating efficiencies across their group of companies and looking out for new opportunities to acquire more MSPs and ISPs to maintain their rapid growth trajectory.
“I always say that you should build a company for the long term. Opportunities will come up along the way and if you have a solid recurring revenue company with a good EBITDA, you will have better negotiating power when those opportunities do arise,” said Kalai.
We are proud to be part of their journey and look forward to following their success as they continue to grow.