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Buying and selling your way to profitability

Buying and selling your way to profitability

I was surprised when the news came through that Data#3 had acquired Sydney-based recruitment firm, Fingerprint Consulting Services, last week. Not surprised there'd been another acquisition - we've had more consolidation in the past year than you can poke a stick at - but surprised Data#3 was doing the purchasing.

In previous conversations with the Queensland-based integrator's chief, John Grant, he told me acquisition can be a risky way of sourcing talent.

Buying a company doesn't automatically entitle you to its leadership and technical skills, or keeping customers for that matter. And while a potential acquisition might look good on paper, how its culture fits with your own is much harder to measure.

Plenty of things can go wrong too, even after due diligence is done and staff have started sharing offices. A deal can unravel at the eleventh hour, as we saw in the case of the planned merger between Leading Solutions and ComputerCorp.

Grant's response when I put this question to him last week was that organic growth, while solid, was not giving Data#3 returns on its investment fast enough. In order to access broader customer opportunities and geographic reach, it needed to switch into acquisitive mode.

He also pointed out Data#3 was already in the recruitment game, and that the acquisition would not have any upfront impact on its financials or introduce unwanted debt. A thorough screening process also convinced him Fingerprint was the right cultural fit. And of course the conditions of the deal are that those experienced management people stay on.

With the search for skills becoming ever-more difficult, it made sense for Data#3 to take the plunge and buy talent, Grant said. And building its recruitment solutions business has got to be a very clever strategy given it's so hard to find people in today's market. I wasn't surprised to hear Commander will return its Nexon integration business to original owners, the Assaf brothers. By giving Nexon back, Commander has avoided having to find $9.1 million to pay for the acquisition and offloaded a non-core subsidiary.

As the economic crisis worsens and global markets tighten, sticking to what you're good at and focusing on improving profi tability is a no-brainer. Commander's efforts to concentrate on key areas of business to better its gross margins are the way to go, but in the ASX-listed integrator's case, the changes look to have come too late. From what I hear in the channel, most of you agree. Several of Commander's customers and vendor partners have lost faith in the company. This has not been helped by zealous sales and management staff cuts across the board (not to mention the number of staff poached by rival integrators). The listed integrator also has an enormous amount of debt, whatever column it shows up in on the spreadsheet.

How the looming credit crunch plays out over the next few months will affect everybody, but it could well break Commander.


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