NetOptions’ Richard McAlary is somewhat of an over-achiever. When he is not acquiring his way to supremacy in the IT world, he is winning a UN International Peace Prize and writing white papers on the poor conditions of the Pacific Highway.
It has been an eventful 2003 for NetOptions; a year in which successful mergers and acquisitions significantly bolstered the capability of the business he started on his lonesome just six years earlier. It included the aftermath of some events he would rather forget – but also some lessons that might shape the future of the Australian IT channel.
The growth of NetOptions has nearly always been about acquisition. McAlary essentially established the company to finance his newly-acquired taste for the Queensland sun – of which his native Canada was unable to provide enough.
A strategist more than a salesman, McAlary worked as an economist in Canada, but somehow also found the time to raise $5 million for the United Nations and be awarded an International Peace Prize by the UN Secretary-General.
His first foray into the IT world came from trying to convince foreign technology companies to relocate or open new facilities in a technology park on Queensland’s Gold Coast.
Fast-forward to 1998, McAlary and a handful of colleagues began providing facilities management (taking over the IT department) for a small company, naming themselves NetOptions. The same year he purchased a small Brisbane-based reseller named Business Affairs, a Compaq/IBM reseller with eight staff and turnover of $2-3 million, which primarily sold servers to universities.
The merger of the two businesses, and subsequent growth spurred by Y2K, saw NetOptions grow to a $14 million turnover company. Again McAlary dabbled in acquisitions in early 2001 bringing on board a group of HP engineers from a business called Netwise Australia.
In late 2001, he began discussions with office fit-out giant, The Schivallo Group. The equity deal between the two companies would shape McAlary’s ambitions significantly – giving him national if not regional aspirations for the reseller business.
In 2002, NetOptions purchased the assets of Laptop Land (Queensland), giving the company more scope around wireless technology and the education market, as well as a lucrative new agency with Toshiba.
The smooth, small transactions that characterised NetOptions’ growth strategy until mid-2002 would come to a grinding halt after the company was caught up in one of the most controversial events the Australian IT channel has ever witnessed.
NetOptions began looking into acquiring part of Powerlan’s Business Infrastructure (BI) division– and after a very brief negotiation process, ended up purchasing some of the division’s staff and customers in Queensland.
Days later the deal would be thrown into controversy when Powerlan Ltd put the shell of the company into administration, promptly followed by receivership. The controversy stained NetOptions’ relationships with its suppliers and peers, and panned out in such a fashion that McAlary now claims he has not much to show for what he paid for.
“There were no assets,” he said. “It put a bad taste in our mouths about acquisitions.”
McAlary said the debacle taught him not to be as opportunistic as an acquirer.
“We will never get involved in another situation like that," he said. "The fall-out was just too great. The deal was done in 24 hours and we had no expectation of the events that would happen. It caused us enormous problems. It was hard for people to understand that we didn’t have anything to do with Powerlan’s subsequent actions.”
With these hard lessons behind him, McAlary has once again built up the courage to acquire again. Just a few months ago, NetOptions confirmed its interest in the purchase of the products division of IT services giant CSC Australia.
The acquisition, which McAlary expects to fulfil his vision of providing NetOptions with a real national presence as well as a larger distribution centre in Victoria, has been a far more structured process than the nightmare of the prior year.
McAlary considers his experiences with Powerlan and CSC to be “like night and day”.
“CSC is a very professional operation,” he said. “It is a stable organisation with other commercial activities to focus on. They are world leaders in outsourcing – so managing transition is their speciality.”
McAlary said that mergers, acquisitions and agency agreements were getting much larger and more sophisticated – and one lesson he had learned was how vital it was to make sure that all vendors, customers and employees were part of the process and were well-briefed.
McAlary said the IT industry was in a period of substantial change.
He saw a need for resellers to reinvent and adapt to changing market conditions.
“While ever our dollar is strong and we buy in US dollars, while ever margins continue to fall, we need to adapt and provide something of value,” McAlary said.
His vision for NetOptions is of a national company that can offer not just boxes but a service that fits out an organisation’s entire infrastructure – be it computers and connectivity or corporate furniture for that matter, all from one point of contact.
NetOptions, through its parent Schivallo, has begun discussions with service providers to jointly approach new commercial property developers with a “smart building” solution.
“The secret of our business is to always be looking at the future,” he said. “While our execution is not always perfect, strategy is something we have. I call us a consulting company now, not a reseller.”
At the same time, he sees the CSC acquisition as the means of being able to deliver bulk product efficiently.
“The corporate overheads at CSC were not in synch with the profit margin available on IT products,” he said. “But for us, moving additional boxes is not that difficult. Arguably we will now be in the top three to four VARs on pure numbers. And we will have the efficiency – the back-end stuff; that can drop 20,000 TFT screens in one hit.”
McAlary is a big fan of doing things differently. While he is involving his suppliers a lot more in decision-making, he has created a culture at NetOptions that focuses on the customer first and foremost.
“We do not have as much interaction between vendor partners and our staff,” he said. “We would rather pay to take a customer out to lunch than have a vendor take our sales staff out to lunch.”
McAlary has also set up a decentralised management team at NetOptions, spread around the country. While a good majority of the company’s business and distribution capabilities now centre on Victoria, he remains in Queensland where he feels at home.
“We have the technology – the VPN and the video conferencing – to make this possible," he said. "I will stay [In Queensland] because that is why I am here in the first place.”
This flexibility has afforded McAlary the chance to also commit his intellect to other ventures – or as he terms them “distractions from moving boxes”.
He recently contributed a white paper to Australia’s Committee for Economic Development on the development of the Pacific Highway.
“I love family and holidays and all the normal stuff, but I also get a lot of satisfaction out of being a commentator,” he said. “Type 'Richard McAlary' into a search engine and you are likely to come out with a whole bunch of stuff.”