Peter Griffin: Lessons for the hunters and the prey

COMMENT


Talkfests usually make me yawn. Too many people talking in too general terms. Too many Powerpoint slides emphasising the importance of "leveraging the enterprise paradigm going forward".

But on Friday I went to a talkfest that actually got me thinking. It was put on by the investment banking group Morel & Co, and managed to attract as speakers a sturdy band of IT executives who have inspiring tales to tell about mergers and acquisitions that the whole industry can learn from.

Guy Haddleton, a ruthlessly focused expat Kiwi whose software business Adaytum was sold last year for US$160 million ($244 million), gave an eye-opening speech about flying by the seat of your pants in business and surviving.

Tech entrepreneur Terrie Lloyd flew in from Japan to talk about selling your company to the Chinese and picking up business opportunities in one of the most advanced markets in the world.

Navman founder Peter Maire, Argent Networkd chief Chris Jones, Wayne Norrie from HDS, Bill Day from Seaworks and Paul Weatherly from Software of Excellence formed a panel to tell war stories of going after prey - and being the hunted.

They got me thinking about how much experience our IT players have gained as their businesses have grown from start-ups to mid-sized operations to mature, profit-generating companies.

Take Software of Excellence, for example, a listed company that has grown by acquisition.

Last month Software of Excellence bought GSD for $4 million, its fifth and latest purchase.

"We're buying customers and we're buying market share," said Weatherly of the acquisitions. The acquired company's software usually doesn't survive the acquisition.

And, said Weatherly, the seller also has motivations for selling that are not always about squeezing as much out of a buyer as possible.

In one acquisition, Software of Excellence picked up a small company for £300,000 ($845,600) and made back the investment in 10 months.

"They did not want to give it to a major competitor of theirs so they sold it to us," explained Weatherly.

But Software of Excellence also found itself on the wrong side of acquisition. In 2001 it was the biggest supplier of dental software in Britain when a US company, Practice Works, came "out of thin air" and scooped up four smaller companies. Suddenly Software of Excellence wasn't on top any more as Practice Works bought market share.

"It could have been us there instead of Practice Works," Weatherly told his audience, pointing to a bar graph showing Practice Works' market share looming over Software of Excellence's.

"We thought [the acquisitions] were expensive. In fact they were dirt cheap."

Wayne Norrie, head of the data warehousing and hosting company HDS, had his own advice to give - on how to successfully complete a management buyout.

Norrie and other investors partially bought out their Japanese owner, Hitachi, two years ago.

"A man on the executive committee had to eliminate 50 heads. He did it in New Zealand and moved the positions to China," said Norrie of Hitachi's reason for selling down.

With the Kiwis firmly in charge of the restructured company, Norrie said the biggest test was introducing a new culture that would define the business and its employees.

"We decided that, hell or high water, we were going to have fun," said Norrie. "We had to shoot some of our senior superstars because they couldn't fit with the values."

HDS even brought in a "results technician" - a hired management guru - to set goals for the company and ensure a productive culture was instilled. The results filtered down to the bottom line, according to Norrie.

"At the end of year one, revenue was up 40 per cent and earnings before interest, tax, depreciation and amortisation was up 100 per cent. Hitachi got the same return owning just 49 per cent of the business."

Now HDS is expecting revenue of between $23 million and $30 million this year and eyeing up the Australian market.

As Navman founder Maire said, "The best training for acquisitions is selling something first."

In 1997, Maire's growing electronics business was running out of money.

"We'd grown quickly and made some mistakes. We had to sell some of the country in eight weeks."

He offloaded a 19.9 per cent stake in Navman which he was later able to buy back from the same investor at a "bargain basement price".

Then Navman scored a coup of its own when it picked up Rockwell's GPS business. Navman put in a US$2 million bid for the business, well below the US$8 million asking price. Navman was outbid, but the successful deal fell over and Navman ended up with the business after all - for next to nothing.

Then Maire found himself on the other side - selling Navman to US giant Brunswick.

Recently Navman and Brunswick looked at Grundig's €200 million Europe-based auto division. After spending US$400,000 on stage one due diligence, hiring financial advisers and accountants to look over Grundig, Maire was outbid.

One thing the panel agreed on - a successful integration of your acquisition is key.

"The question is, what are you going to do in the 12 months after you get it?" said Maire.

Guy Haddleton went through at least half a dozen capital raisings and a host of shareholder rejigs before he started negotiations for the acquisition of Adaytum.

"That highly qualified advice wasn't worth it. You're much better to get a really aggressive lawyer. They scared the hell out of my Harvard, Princeton and Yale lawyers, so I got new lawyers."

For Haddleton it was sell out or go acquiring himself, and he didn't see as much following in doing the latter.

Good on Morel & Co for putting on a useful event. Those who attended learned from those who have ridden the mergers and acquisition rollercoaster. Other companies have much to learn from them.

As Argent Networks boss Chris Jones pointed out: "The five most powerful words in the English language are, 'Can you help me please?"'

* Email Peter Griffin