For a branch of a hi-tech industry, the
But the legal landscape looks to be changing pretty rapidly – and Vin Murria is driving the biggest JCB on the block as she seeks to construct a modern edifice from the traditional materials she has acquired.
Enough of torturous images – Vin Murria bears little resemblance to your normal JCB driver, although I would not presume to doubt her ability to drive one if she so chose. The bare facts about the acquisitions are these:
· Computer Software Group announced on 2 May that it had signed a definitive agreement to acquire AIM Group. Based in
· In June, Computer Software Group announced that it had acquired Laserform International Limited. Computer Software Group is reported to have paid £4.8 million in cash and shares. Laserform is a leading provider of forms software to the legal sector and boasts a client base of over 2,200 firms. Laserform’s subsidiary company, LFM Partnership Solutions Ltd supplies case and practice management software to a broad range of legal practices.
· In August, Computer Software Group announced that it had paid approximately £7 million for legal software firm Videss Ltd, including £6.57 million in cash. It said the acquisition was financed by the issue of 518,135 shares plus a bank loan. Computer Software Group said Videss had a turnover of just under £5 million for the latest year and showed profits of £0.5 million to 31 March. Videss has some 180 legal firms in its client base, with about 10,000 users and annual support contracts worth roughly £2 million.
It reached the stage where three of the top five stories on the SCL Web site were about the Computer Software Group acquiring a legal software supplier. I wanted to know what lay behind these acquisitions.
Background
Vin Murria has a first class honours degree in Computer Science and an MBA. She was European COO for Kewill Systems plc, a $120m software company, having been with that company for 16 years. She left there at the time of the Internet stock boom, selling her equity with a flair for timing that tends to underpin her claims to business vision. She told me that she anticipated a spell perfecting her sailing skills but was persuaded by leading venture capitalist Michael Jackson (who made Sage a mega-business) to join him at Elderstreet Investments. It is through Elderstreet’s interest in Computer Software Group that Vin Murria found herself as CEO of the company.
At that time CSG was losing money. Three years ago it had a market capitalisation of £2.6 million, a turnover of £3 million and was making an annual loss of £1 million. Now Computer Software Group has a market value of nearly £60 million, an annualised turnover of £50 million and estimates that profit (EBITA) for the year will be between £8 million and £10 million (broker’s forecast). Of course there have been some favourable winds in the sector in that three-year period and much of the increase in turnover is bolt-ons rather than organic growth (which is running at upwards of 8%) but, no matter how favourable winds may have been, Computer Software Group appears to have benefited from a gifted hand on the tiller. Vin Murria was at pains to emphasise that this was not a one-woman achievement giving extensive credit to her fellow directors and colleagues and to her Chairman (‘when things get tight in negotiations Michael Jackson is very helpful’).
Why Legal?
Our interview was very much focused on the immediate past and plans for the future. My first questions were concerned to establish why, out of all the sectors that an investor might consider, Vin Murria had chosen to focus her attention on legal.
A major part of the reason was pretty simple – it’s what they do. Computer Software Group specialise in identifying businesses in areas where their market performance can be radically improved by consolidation:
‘By operating in vertical markets with a good deal of scope for consolidation we create an opportunity to bring to our newly acquired clients a wide range of other applications. In the legal context, this means that we can offer applications focused on e-learning, business compliance, business intelligence, document management and CRM. We have existing IPR which will allow us to offer AIM and Videss firms a document management system for, say, £5,000 to £10,000; that is the sort of add-on which is going to benefit those firms and is affordable – and is going to add to our turnover and profitablity.’
‘We look at a number of factors in identifying a suitable market for us. We look for companies with clear IPR ownership, a blue-chip client base and a recurrent income and we look for room for us to create value. Another important factor is that it must not be a market which is already dominated – Microgen dominate in the financial sector and Northgate in HR and the absence of any similar influence in the legal sector was also part of the attraction.’
‘Plus, my family are all lawyers and all my girlfiends are lawyers – perhaps that was a factor.’
Future Developments
Before my interview, Vin Murria was described to me by those who had dealt with her as ‘a hard cookie’, ‘aggressive’ and ‘ruthless’, but one quality that was mentioned more than once was ‘enthusiasm’. She was certainly clear in her vision and frequently raced ahead of my capacity to take an accurate note of her comments but this was disciplined enthusiasm – I doubt that the bottom line ever disappears from her perspective. Vin demonstrated a very clear understanding of what she had acquired and the limits of the companies concerned. She knew that they were not, by dint of consolidation, going to be competing at the top end of the market but were now, she felt, unavoidable contenders for every contract in the £20k to £200k bracket. I was quick to agree with her view that the legal software market needed to see some movement and realignment.
‘This is a market with an awful lot of niche suppliers – a number of businesses had become ‘lifestyle businesses’. They are not all growing in the way that we think they should. Businesses that started in the mid 1980s have sometimes become job retention exercises and it is not always the case that the person who founded a business is the best person to make it grow. Sometimes a change of ownership is best for the business and best for the employees to avoid stagnation and inevitable failure. We are investing, and will continue to invest, upwards of 10 to 15% of our funds into enhancing, supporting and developing existing products, whilst also introducing new products, so we have a dynamic business format.’
I expressed the view that Computer Software Group appeared to have bought companies that delivered similar products in similar areas and that they would find themselves competing against each other in many situations. Vin Murria does not see the problem:
‘The two companies, AIM and Videss, target slightly different markets. Of the 30 or 40 deals for which they contend, they are competing in only two. Laserform’s core business does not compete with them at all. Our experience of similar acquisitions in other spheres, such as the not-for-profit sector, is that companies only really compete for a handful of contracts where they are really likely to win the business. Of course they won’t discount against each other but the new situation will affect little beyond that. Videss targets itself at a slightly higher level than AIM but, where it is not clear which of the products which we have available is right for the client (in a handful of cases, there will be grey areas where it is not clear which product is right), we will let the client (at our cost of sale!) decide and make sure that the options are put fairly.
‘In any case, we see the consolidation as greatly increasing opportunites for all the companies we have acquired. First, it will be indefensible for consultants and the like not to include us on tender lists when we are now the biggest or one of the biggest players in the field – and that means more opportunities for us to show what we can do. In the not-for-profit sector we saw a 250% increase as a result of consolidations which made us the biggest in the sector – and that meant we were a candidate for every deal. Second, there are real cross-selling opportunities. The most obvious arises from the fact that both AIM and Videss link with Oyez and can now offer their clients links with Laserform products but that is by no means the limit of those opportunities.’
Vin plans to help develop what is now a considerable suite of products by listening to users. Computer Software Group will have both a legal advisory board which will help them identify products and develop strategy and a steering committee of users. This is one area where she feels that consolidation will benefit clients of each of the new acquisitions:
‘Of course we will always protect and look after our customers – we are not a cut and run organisation and our record in other fields proves that. But there are significant synergies which drive the customer base and products. We will be investing heavily in R&D, again we have a track record in doing so and it will move forward much more dramatically, but all development will be in .net and that is likely to mean that in 4 to 6 years all our products will come together. This will be a gentle transition driven by the technology.’
Good Buys?
I hesitated to challenge an expert in these sorts of investments but I voiced the view that the acquistions looked like they were gained at a high price. The Laserform deal, stripping out the cash, cost £3.3 million on an EBITDA of £500,000 and the Videss deal looked even less attractive if the standard measures were applied. Plus, running so many businesses with so many offices looked like an uneconomic proposition. Did that mean that there would have to be swingeing staff cuts and other economies? Vin Murria was not in the least defensive but was clearly very confident that she had pulled off plum deals.
‘First of all, if I make changes I make them from Day 1. It is true that we have offices everywhere and that is unfortunate, but many are on short leases and opportunities will arise in a couple of years to link a number of offices together. In the
So the obvious question was ‘Who is next?’
‘Of course we have other targets in mind but I am not going to say who – and I am not going to chase the price. I do believe that there is room for further consolidation in Tier 2 and 3 of the legal market – so you may be hearing about us again soon.’
I ended the interview pretty certain that I would indeed be writing an acquisition story again very shortly. If I had begun the interview genuinely doubtful about the advisability of the purchases at the prices paid, I ended it very much convinced that Vin knew exactly what she was seeking to achieve and wondering whether my two-penn’orth of invested capital might see a better return if it was spent on Computer Software Group shares.
