Regeneration Partners Sees Huge Growth At Its New Disaster Recovery Business

Since the terrorist destruction of New York’s World Trade Center last September 11, few companies consider themselves well-prepared without a disaster recovery plan to preserve critical information needed in running the business. Storing the data in remote locations out of harm’s way is an important safeguard. But what happens if personnel at the crippled company can’t reach the backup facility because their access equipment has been knocked out? To deal with that question, businesses increasingly are summoning help from firms like General Electric Disaster Recovery Services (GEDR), which rushed in servers and other IT gear that allowed many World Trade Center-based companies to quickly restart operations in the wake of the terrorist attacks last September. As a result, disaster recovery specialists are savoring exceptional growth prospects in coming years, according to Regeneration Partners, a New York-based private equity firm, which bought control of GEDR from General Electric Co. in mid-February. If fears of another terrorist-inspired attack obviously have heightened security consciousness, many customers have been led to GEDR and its handful of competitors by the reality that even the most routine mishaps can put their equipment out of commission. Mark Jennings, managing general partner of Regeneration, says that disaster lurks in many natural and manmade guises and can be “anything that prevents the end-user from accessing the data they need.” “It could be the total destruction of the PCs, the local area network, or the router gear,” he says. “Or it could just be prevention of access to the equipment, and that could be from a computer virus. “There are many real-life examples. Some of the most common are hurricanes, where even if something is not destroyed, the storm can prevent access to it. Ice storms have kept people out of facilities for days on end. We have had computer viruses and we have had instances in which software vendors got into arguments with each other. Meanwhile, the company’s network can’t operate. We had one case in which a mainframe could not operate for several weeks because a security guard stuck a magnetic flashlight on the side of it and corrupted a lot of files.” Add to the litany, Jennings says, the threat of bioterrorism or the discovery of anthrax, which could cause evacuation of computer facilities for long periods of time. More than a thousand businesses, representing a “broad cross-section” of companies based on size and type of operation, already have signed up for GEDR services, which Jennings likens to “an insurance policy” with multiple revenue streams. The most visible service is the supply of equipment on demand by customers in trouble. GEDR packages include “guaranteed technology replacement,” which delivers hardware within 12 to 48 hours of a “disaster declaration,” and “mobile recovery,” which includes hardware, temporary facilities, and satellite connections. But the services go deeper than that and include extensive consulting work, including development of a total disaster recovery plan. After a contract is signed, GEDR personnel will size up the client’s backup needs and buy the equipment necessary to carry out the recovery plan. The client pays monthly fees plus “declaration fees” if the equipment is put into operation, based on how long it is needed, and daily usage fees. Regeneration, which concentrates on leveraged transactions in the technology area, had been interested in GEDR since early 2001 when GE decided to slim down the IT solutions business housed inside the GE Capital financial services operation. In an ironic twist, the buyout firm, after months of talks, lodged a formal offer with GE on September 10, and, Jennings notes, “the 9/11 incident created a whole different atmosphere around the disaster recovery business.” World Trade Center-based customers issued 15 “simultaneous declarations” of need following the attacks and they were serviced more quickly than the agreements promised. “It was very much an acid test of what GEDR is all about,” Jennings says. Besides the promise to be there in an emergency, GEDR attracts business because it takes much of the intricacies of disaster recovery off customers’ hands in a cost-effective fashion. “We have spent tens of millions of dollars on equipment that obsoletes itself very quickly,” Jennings states. “We have a strong team that assesses technology, and where technology is going, to acquire the equipment. We have thousands of customers so we are able to buy equipment at very low prices and we can oversell to enough customers to make it pay, so that we run a very profitable business.” In turn, GEDR augments its basic equipment supply function with consulting work to set up the disaster recovery plan, update it continuously, and ensure that it can be “hosted at an independent site,” if necessary. “In the case of a disaster, they know exactly where to go and they know that their plan is updated,” Jennings says. “The technology changes constantly – even six months can bring significant changes,” he says. GEDR’s solicitation of new customers is done in concert with “channel partners.” To date, the principal partners are the major suppliers of data backup storage systems, International Business Machines Co. and SunGard Data Systems Inc., which recently acquired the third major player, Comdisco Disaster Recovery. But Jennings says that GEDR intends to expand the ranks of its partners to include a wide variety of other operations, including insurance companies, information technology firms, computer manufacturers, large systems integrators, and accounting firms. “Essentially, we will deal with any firm in communications,” he says.