The story behind Powerlan's acquisition of CSSL

It's going to be interesting to see how the media and the Hong Kong IT grapevine paint the startling acquisition of a revered Hong Kong systems remarketer by an upstart IT services provider in Australia.

In what seemed like the blink of an eye, Commercial Software Services Ltd (CSSL), the locally based IBM systems remarketer known for its leadership in the person of good-natured New Zealander John Clough, and respected for its well-established presence throughout the region as the elder (if somewhat stodgy) statesman of the mid-range market, became the wholly owned property of an aggressive Australian outfit called Powerlan, headed by a young IT go-getter named Theo Baker.

However, this dramatic development will ultimately be portrayed by the uninformed; so conclusion-jumpers notwithstanding, here is the story of what actually happened.

It all began with a plan that ended up being abandoned.

Clough, who along with Thai banker Charn Sophonpanich founded CSSL in 1983 (Clough had been introduced to Charn by John Kennedy, founder of international banking software supplier Kapiti when Clough was general manager of JBA, the agent for Kapiti), had originally intended to take CSSL public in Australia.

CSSL Group was a privately-held company, majority-owned by Charn and the Sophonpanich family, with IBM holding 25 per cent and Clough himself also holding a minority share. Twelve months ago, Clough, acting on behalf of all the CSSL shareholders, set out to lay the groundwork for an IPO on the Australian Stock Exchange. Clough serves as managing director of the CSSL Group, and had very specific reasons for wanting to take his company public, even though he knew it would be a complex process that would take two to three years to complete.

"From a motivational and incentive point of view, I needed to do something with the company," Clough explained, noting that he had long-serving managers who needed some sort of share option plan or equity participation scheme in order to be expected to stay with CSSL. "We've always been aware of that, but you can't do that in a private company," he said. "Certainly in Asia you can't do it."

So Clough approached Trevor Kennedy, his partner in Australia who owned 25 per cent of CSSL's Australian operation, to help him raise the funds to buy out the Sophonpanich family and IBM, with the intention to then list the company on the Australian Stock Exchange. According to Clough, Kennedy had good connections in the Australian finance community, and had been involved in the startup and sale of OzEmail, Australia's largest ISP which was acquired by MCI WorldCom last February.

A little over a month ago, Clough went down to Australia, where Kennedy had arranged a roadshow in which Clough was to meet with six merchant banks in a bid to raise the money. The first bank he met with was an outfit called KTM Capital in Sydney, and as it turned out, he would need to look no further.

Tod McGrouther, the director of KTM Capital, was impressed with CSSL, but he had a different plan in mind. Rather than back a bid by CSSL to do an IPO, he wanted to link CSSL up with an Australian IT outfit that was just about to do its own IPO -- Powerlan.

It was McGrouther, then, who actually brought CSSL and Powerlan together -- the individual whom Clough calls the "marriage broker". McGrouther arranged for Clough and Powerlan managing director Theo Baker to meet on August 30, and, according to Clough (who said he had never even heard of Powerlan before), the two immediately hit it off -- and both saw an obvious synergy between the two companies.

"What CSSL did is focus on basically the IBM mid-range. We gave away the Web-enablement type-work, we gave away LAN/WAN setups, Lotus Notes training, Domino training, Lotus Notes consulting, all the NT-type business -- we actually gave all that away to other companies to focus on our own area," Clough said. "Theo did everything we'd give away."

Within two days the two had signed a letter of intent for Powerlan to acquire CSSL, and they immediately set out to visit each of CSSL's 12 offices throughout Asia -- a dizzying whirlwind of daily flights, trains through China and Bangkok traffic jams that eventually led to the last stop, which was Jakarta.

Unfortunately, it was just when the East Timor crisis flared up. They managed to get out thanks to a driver who knew a circuitous route through shanty towns, as gangs had moved in and closed the main road to the airport, Clough said. So the pair's first joint undertaking was an adventure.

And they continued to act fast. They signed an agreement of sale and purchase on September 10, and announced the acquisition to the Australian Stock Exchange on September 14 -- which drew a positive reaction from the market and yielded a jump in the Powerlan share price (Powerlan had just recently completed its listing).

That it all happened so fast is all the more surprising when you consider how much effort had already gone into taking CSSL itself public. According to Clough, a board of directors had already been structured in Australia, and a chairman had even been named. What convinced him to scrap all that and go the Powerlan route instead, Clough said, was the advice he got from Trevor Kennedy.

That advice, as recounted by Clough, made sense: "John, I know you're about to embark on this thing, but you've got two to three years of fees, accountants, solicitors, and Australian Stock Exchange regulations. You'll get there, but this route is 24 hours, and you'll be where you want to be."

So now that it's all said and done, will Clough just fade out of the picture, allowing the heart and soul of CSSL to be consumed by Powerlan? Anyone who thinks so doesn't know him very well.

Clough, now a member of the Powerlan board of directors, is staying put in Hong Kong, where he will continue to serve as CSSL's managing director. He couldn't leave even if he wanted to. His Hong Kong-born wife wants their 16-month-old son to go to school here, so this will continue to be Clough's home, as it has been for the past 18 years.

The fact is Clough went to Australia in the first place looking for fresh blood to revitalise his company, and that's what he got. At 51, he's getting a kick out of linking up with 35-year-old Baker, whom he describes as a ball of energy. "It's great to rub shoulders with myself 15 years ago," he said.

"I am genuinely energised to make this work," Clough stressed. "The synergy is really good. I'm not the sort of guy who's just going to flip out of it. I've got a lot of feeling towards the people around the region, and I do want to make this work. I feel good about it."

Having been acquainted with Clough for nearly 10 years, I believe him, and I'm confident that anyone who knows him -- and especially those who work for him -- do, too. Clough pulled off a mean feat in bringing CSSL where it needs to be to continue to be successful, and doing it fast enough to make any observer's head spin. CSSL's stodgy days, to be sure, are over.