Solution 6 will divest its IT services business Alphawest 6 by June 30 in a bid to start the new financial year with a clean slate, ARN has learnt. The move comes as the company attempts to position itself as a global software house following last week's $37 million acquisition of UK software developer Keystone Solutions.
The news comes as little surprise to many after several market announcements by Neil Gamble, Solution 6's chief executive officer, as far back as September last year. Gamble has long flagged the company's intention to consolidate around professional services software (PSS) such as financial applications and rid itself of its IT services business, which has been hit by a severe downturn over the past 12 months.
PSS contributed EBITDA profits of $8.5 million on $78.1 million in revenue for Solution 6's half-yearly results, up 10 per cent on expectations. PSS now represents annual revenue of around $160 million. On the other hand, IT services posted an EBITDA loss of $3.3 million on revenues of $71 million.
The Alphawest 6 subsidiary represents 75 to 80 per cent of Solution 6's IT services, according to Neville Buch, Solution 6's managing director. Although Buch would not confirm or deny the company had found a buyer, or that it was common knowledge that the business was for sale, he did say it was "pretty obvious" from March that the business would not remain the property of Solution 6 for much longer.
An information memorandum has been circulating the channel for months seeking expressions of interest for the Perth-based subsidiary. "The business has been shown to all and sundry for the past four months," said Buch.
The news comes just weeks after ARN revealed fellow ASX-listed company Powerlan had begun initiating divestment plans for its IT services business, to concentrate on developing software and business applications.
Buch said Solution 6 and Powerlan's decisions reflected an overall depression in the services market, which had become a cost drain on companies and shareholders. In an announcement to the ASX in March, Gamble said: "Improved profitability [to the IT services business] will come with scale and industry consolidation is possible. We'll be looking to participate in any rationalisation."
"A lot of companies were put together [in high growth times] with completely different business units," said Buch. "Software units with services businesses -- it just didn't fit. And the services business is a much more cyclic business anyway. You've just got to be who you are."
Should Alphawest 6 not be sold by June 30, Buch expects it to be spun off as a completely separate entity. He said that if Solution 6 doesn't sell the company by then it has the potential to drag on into another year. "Neil's got to give the market and the analysts the clarity that they need about Solution 6's focus."
It's taken a long time to find a buyer for Alphawest 6, despite the unit trading quite well through the current quarter. "Now is not the time to be selling an IT services business," conceded Buch. "In principle we're in no-man's land. If we move too fast, we can damage the shareholders. If we move too slow, we damage the shareholders again. It's a delicate situation."
Solution 6 purchased Alphawest in May 2000.