Mega Reward From A Decade Of Bulking Up
Consolidation among IT services and procurement companies has been a recurring theme in Ireland’s M&A arena in recent years, and 2020 closed with a mopper-up being mopped up. Eleven months after Arkphire acquired Trilogy Technologies to become Ireland’s largest indigenous IT managed services business, the business was sold to American peer Presidio.
Such an outcome was always likely after founder Paschal Naylor parted with a 47.8% stake in his business to private equity firm Bregal Milestone. Presidio was bought out in 2019 by PE giant BC Partners, and in the nature of these things the PE players like to pass on the smaller parcel.
The deal will be reviewed by the Competition and Consumer Protection Commission, which in February 2020 waved through Arkphire’s takeover of Trilogy. Trilogy had itself bulked up in September 2018 with the €7m acquisition of Zinopy Security, with John Ryan and Ger Coakley benefiting from that deal.
Trilogy’s accounts filings for the sixmonth period June to December 2018, which included some of the Zinopy benefit, showed revenue of €18m and end-period trade debtors of €3.2m. Total liabilities after the growth spurt amounted to €17m.
Arkphire’s outlay for Trilogy was not disclosed. The Trilogy/Zinopy metrics were x6.2 times trade debtors plus net assets. On that basis Trilogy could have had a price tag of c.€20m minus the €3.6m net liabilities, though Naylor and Arkphire chairman Paul Nannetti might also have discounted down the €5.8m goodwill attributable to Zinopy.
Trilogy directors John Casey and Edel Creely ended up with small shareholdings in Vulcan Bidco Ltd, which owns the Arkphire business. Selling up to Presidio was Naylor’s call, as he controlled 50.2% of the equity.
Paschal Naylor (65) grew up surrounded by his father’s printing business in the west of Ireland. He trained as an accountant and worked with, among others, General Foods. In the 1980s, with an increasing number of IT firms landing in Ireland, Naylor’s attention turned to that sector and he was recruited by Mostek. Then it was on to Memorex, which manufactured CDs, with Naylor assuming a leadership role in the Irish operation.
In 2008, Memorex’s German owners wanted out of Ireland and Naylor and his colleague Howard Roberts organised an MBO, which was effected in 2009. That was the genesis of what Arkphire was to become, and buying into an established entity meant that the venture had annual turnover of c.€10m from the start.
Naylor’s ambition was fixed on growth from the outset, aiming at €50m in revenue. That was achieved within five years, through acquisitions and aggressive hiring. The entrepreneur remarked at a Business Plus seminar a few years ago: “Your belief in where the business is going to go will resonate with the team. That belief comes through how you handle your customers, and how you deal
with incidents or issues in the business. In IT, a lot of the time you are fixing things, so the relationship with the client is really important. You set your goal, your target: how will we get to €50m, how will we get to €100m? It’s not an exact plan but when you have a goal you are drawn to it.”
Scale brings its rewards in the technology services sector. In the year to June 2019, Arkphire had turnover of €126m and an operating profit margin of 5.3%. Three years earlier, revenue was €53m and the margin was 1.9%. Arkphire’s Ebitda in 2018/19 was €7.5m, and it presumably improved a lot in 2019/20, with Presidio paying $142m (€120m) to grab a toehold in the Irish market. That’s a gross of c.€60m for Naylor, one of the most quietly-spoken and pleasant CEOs you could ever meet. There was also a nice chunk of change for the founder when Bregal came on board two years ago.