Tell us about the reasoning behind your acquisition of BCA IT and what it adds to Leading Solutions.
We looked very closely at what was happening in the Australian market, which is following overseas trends. We have seen consolidation from a vendor perspective and we are seeing the same thing within the dealer channel. The market has got to a point where you need to have economies of scale or operate within a specific vertical. If you go back five years in the Australian market there were a lot of mid-sized players, but margins are now so tight that this tier has been forced to make a decision about whether to move up or across to a vertical. I talk to a lot of my counterparts and they feel very much the same. In the last year-and-a-half we have seen a lot of that consolidation. The reality is that we will see more. We have moved up in terms of volume and are now starting to move across into verticals.
Has BCA brought anything to Leading apart from scale?
Yes. Once we decided there was a need to grow we were looking for a company that would add more than just volume. One of the things we looked at was customer base because Leading Solutions has traditionally been very strong in the university space, private schools, SMB and local government. We wanted to find a company that was complementary. BCA was very strong with TAFEs and the top 300-400 corporate companies. When we compared the top 20 customers from both companies there was no overlap. That's how nice the fit was.
Leading and BCA were about the same size so the acquisition effectively doubled our revenues. I believe the reseller market is divided into five segments - education, government, utilities, corporate and SMB. There are times when the corporate market is slow and others when education dies down so splitting across those segments is important and BCA offered breadth. If one segment falls out, there are others we are strong in.
BCA also added break/fix facilities to conduct warranty repairs that Leading didn't have. It had some major clients in that space like ANZ Bank. Leading had reached a size where not having those facilities was starting to cause some hindrance.
What has been the most difficult aspect of the merger?
There are issues every day in running a business but they have never escalated. Merging the systems was probably the biggest because the Leading systems were much more powerful in terms of sales and marketing but couldn't do any of the break/fix stuff. That was a whole new addition to our systems. The BCA systems are still running but as modules are created they are flicked across. It will be about three months before we completely switch off the BCA systems. You keep hearing about mergers and acquisitions in this industry that are disastrous because the cultures haven't integrated, volumes have dropped or customers are unhappy. I won't mention names but there are companies out there experiencing a great deal of pain at the moment. We now feel like one organisation.
How were the cultures different?
Leading Solutions was very much a family culture whereas BCA was far more corporate. We still have that family approach now but with a bit more of a business feel. You only have to look at the staff because we have lost very few people. It's been single digit.
Economies of scale would surely be one of the biggest reasons for bringing the two companies together. There must have been some reduction in headcount.
There were significant reductions in certain roles but both organizations had very good people that were committed and worked hard. Those people are valuable so we transferred them to other areas. I think we made two redundancies and they were BCA directors.
How many staff do you have now?
About 240. We have lost eight people in seven months but that is normal.
How were the sales numbers for the financial year?
If you took the two businesses from last year and added them together, one plus one should equal two but we ended up with 22 per cent growth. We ended the year at about $180 million.
You mentioned earlier that you were looking to build vertical expertise now that your volume issues have been addressed. Which ones are you focusing on?
We have split our business into three segments - the infrastructure business, which is the traditional tin products we push; professional services, where we have created quite a sophisticated pre-sales team to focus on specialisations like VoIP and virtualisation; and software services, where we either write software from scratch for organisations or supply CRM and ERP systems. You will see us continue to acquire businesses to drive further down that path. We are very strong in the car rental space, the fashion industry and also have a major bookstore application.
So can we expect to see you acquiring ISVs?
No. Acquisitions are more likely to be in the ERP space where we have Microsoft Dynamics and are also a Scala partner. That's where we are putting a lot of focus and looking for acquisitions to fuel momentum.
But would hardware still account for the lion's share of your business today?
Definitely from a sales revenue perspective but not necessarily if you look at profitability. The infrastructure business accounts for 40-45 per cent of our profits today so the majority is coming from professional services and software.