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Integral buys Axon in $18 million deal

Integral Technology Group has bought a fellow IT services company, the larger Axon, for an undisclosed sum. IDC Jenna Woolley put the value of the deal at “between $15 million and $18 million.” Ms Woolley said the estimate was based on a sourc

Chris Keall
Tue, 04 May 2010

Integral Technology Group has bought a fellow IT services company, the larger Axon, for an undisclosed sum.

IDC Jenna Woolley put the value of the deal at “between $15 million and $18 million.”

Ms Woolley said the estimate was based on a source close to the deal, plus an estimate of (slim) ebit and a standard industry multiplier of 5x to 6x.

The purchase price was “good for Integral, bad for Axon,” Ms Woolley said.

The analyst said Integral was driven by its desire to move beyond selling low-commodity hardware (or “pushing tin” as the company puts it), and expand its business in more lucrative IT services.

The takeover is billed as creating New Zealand’s largest locally-owned, independent, privately held IT services operation, with a turnover for the trailing 12 months of about $120 million, and 360 staff (the $156 million turnover touted in the duo’s official press release is a forecast for the coming year).

Ms Woolley said the deal would put Axon-Integral in the same league as the multi-national Fujitsu, and the Australian-owned TelstraClear’s IT services operation (the largest IT services providers are HP and IBM).

Integral, founded in 1994, has close ties with IBM and Microsoft, and approximately 130 staff.

Integral’s David Sutherland - from today, executive chairman across the combined company – said Axon chief executive Scott Green will assume an advisory role to the board for a period of time.

Integral’s managing director Ray Noonan will become managing director of the new company and Integral Sales and marketing director Catherine Blinkhorn will become director of customer engagement.

The biggest local IT services company of them all?
Mr Sutherland told NBR that deciding New Zealand’s largest IT services company was a thorny issue.

By billing Axon-Integral as our largest privately-held IT, independent services company, Mr Sutherland neatly snips the much larger Gen-i (publically listed Telecom’s services division) from the equation.

But what of Datacom, which by the executive chairman’s own admission also dwarfs Axon-Integral? (Datacom has around 1500 staff, and NZ revenue of around $300 million.)

Mr Sutherland countered that New Zealand Post’s minority stake in Datacom disqualified the services giant.

Away from thankless hardware, and together into the cloud
Anyhow, the great Who’s Biggest? debate aside, Mr Sutherland said Axon and Integral can now focus on pooling their efforts.

Both companies had been in the process of creating private cloud computing and software-as-a-service facilities. These infrastructure efforts will now be consolidated.

In the past 12 months, Axon’s revenue has been around $90 million, and Integral’s about $30 million.

Both companies are trying to "decrease their reliance" on selling commodity hardware and "increase their reliance" on the more lucrative professional IT services area, Mr Sutherland said.

By this criteria, the pair are much closer, by Mr Sutherland’s account, with Axon drawing around $30 million of its trailing 12-month revenue from services, and Integral around $15 million.

He saw their skills as complementary, with Axon bringing managed services expertise to Integral’s 300 or so customers, and Integral brining software services smarts to Axon’s 400 or so customers.

Both companies operate nationwide but have their head offices in Auckland; Axon in tony Newmarket, Integral in the office parks of light industrial Greenlane.

Over the next month, Integral staff will de-camp to Axon’s office.

IDC’s Ms Woolley said she expected the new company would shed staff as it integrated.

Mr Sutherland said it has yet to be decided what the new company will be called.

It could be one or other of the existing names; a combination of the two or a whole new name, depending on how different options go down with customers, the executive chairman said.

Asked if his company planned to grow further, Mr Sutherland replied that Integral was "acquisitive by nature," said Mr Sutherland, having already bought our four rivals.

Chris Keall
Tue, 04 May 2010
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Integral buys Axon in $18 million deal
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