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Quadrant scores 8x return as Singtel’s NCS buys Arq for $290m

Just two years after Quadrant Private Equity bought digital solutions company Arq Group for $35 million, the Australian company has been acquired by Singtel Group subsidiary NCS in a deal worth $290 million.The deal represents a more than eight times return for Chris Hadley’s Quadrant and the Arq management team that also participated in the buyout, and follows a significant turnaround of the Arq business, led by CEO Tristan Sternson.Arq Group’s Tristan Sternson and NCS CEO Ng Kuo Pin will integrate the digital solutions companies. Edwina PicklesIt signifies a further push into Australia by NCS, which also bought Australia’s largest privately owned technology services company, The Dialog Group, this month for $325 million.Like Dialog, Arq will integrate with NCS’ digital services business, called Next.Speaking to The Australian Financial Review, Mr Sternson said he had reached out to NCS before running a sale process, knowing it was the company’s preferred acquirer.“We always wanted to choose our own destination, where we’d end up, and we worked super hard to turn the business to something in demand by as many people as possible so that Arq could continue to grow,” he said.“We’ve known Kuo [Ng Kuo Pin, NCS CEO] and his team for a while, and we had a conversation and everything about Next was the same as us. We reached out to them and said ‘before we run a process, would you be interested in talking to us in a bit more detail, and he said straight away ‘let’s make this thing happen’.”Arq was advised by Gilbert & Tobin, PwC and Tooronga Advisory on the deal, while Allen & Overy and Deloitte were in NCS’ corner.Mr Sternson and other key Arq executives have committed to staying on for at least three years under the terms of the deal.Arq used to be merged with Webcentral and the businesses operated as one ASX-listed entity.Since the split and Quadrant acquisition, Arq has retired its former data centre operations, as well as some of its consulting practices, and doubled down on cloud, data science, artificial intelligence and digital technologies for mobile and web applications.It has also extended its footprint in government, with government deals now making up 34 per cent of its revenue. Its second biggest segment is financial services.Arq is projecting revenue to grow by 38 per cent for the 12 months to December 31, forecasting just under $120 million in revenue.Right peopleMr Sternson said the transformation had come about after it refocused on getting the fundamentals of the business right.“We had to ensure we weren’t over-hiring, that we had utilisation targets right and that we were hiring the right people,” he said. “We have also halved our rental space, and we still have too much. Quadrant has helped us with that.“The second part is we put in amazing systems and processes. We are a data business, and now we’re a data-driven business. We can see everything happening in this business at a point in time... using FinancialForce and Salesforce.“Quadrant had set milestones for the Arq business and planned to hold it for three to five years, but Arq achieved its goals earlier than expected.Knowing the company was tracking well, Mr Sternson said he and Arq’s management team laid out its “choose your own adventure” path and knew its ideal acquirer would be an international business that was focused on digital skills, and would look to grow Arq and not “gobble it up”.“NCS ticked every single box. We created our metaverse and moved into it,” he said.Quadrant partner Simon Pither led the PE fund’s acquisition of the business and has helped guide the company through its turnaround.“In partnership we have further strengthened the senior leadership team, invested in internal systems, operations and platforms, and completed the strategic acquisition of Diaxion to move further into the government sector and technology advisory,” he said.NCS stands for National Computer Systems – the company’s original name when it was founded as a Singapore government agency in 1981. It was privatised and sold to Singtel in 1997 and now employs more than 10,000 people.The Dialog and Arq acquisitions are the latest in a series of deals for NCS and CEO Ng Kuo Pin said the Arq deal completed a “jigsaw of strategic acquisitions” designed to ramp up its presence in Australia.“Combined with Dialog’s core IT capabilities and extensive reach across eight Australian cities, Arq brings on board the right digital competencies that help create a highly compelling end-to-end digital transformation value proposition,” he said.“Taken together, our four investments to date have given us the necessary scale, capabilities and credibility to compete as a regional digital powerhouse as we help governments and enterprises in Singapore and Australia achieve their digital transformation goals.”One of Arq’s biggest growth drivers at the moment is the demand from its client base to help them attract and develop more workers with technology skills, amid a sector-wide skills shortage.Modelled off its internal Arq Academy, Arq runs two to 12-week courses for customers to help them reskill staff in technology. It has run the program for 11 customers so far, including the New Zealand government.Other big growth areas for the 600-person business include customers “re-platforming” mobile app systems to the cloud, and cybersecurity.“We expect to continually grow at least 20 per cent year-on-year, but coming together with NCS we expect a much greater growth rate,” Mr Sternson said.