We should have a close look at SOH at these levels. They seem to have bottomed and with a string of positive announcements it looks unlikely to drop below 60c with the upside above $1.
ASX Code: SOH Announcement: Open Briefing Solution 6 Holdings CEO on US$12.5m Acq
Date: 11 June 2002 - 12:11:35 Market Sensitive: Yes
Solution 6 Holdings Limited today announced a US$12.5 million acquisition of US based software solutions company, Novient Inc. Will the Novient acquisition be earnings accretive to Solution 6?
CEO NEIL GAMBLE
Novient is on the cusp of profitability and strong growth. Our acquisition is very timely.
Since formation in 1995, Novient has invested over US$50 million in developing its software and service capability. Recently, Novient's cost base has been reduced substantially and customer acceptance of Novient's software has been established. It has a very healthy pipeline of sales potential and it will benefit from our international credentials.
We expect Novient to be EBITDA positive in its first six months and earnings enhancing overall in 2003.
Novient meets all our acquisition criteria. It fits the strategic direction of the group announced in the last annual report and AGM. We have undertaken a lot of research in the Professional Services Automation market. We reviewed and rejected a number of other companies in this space. The best fit of all companies in this market is undoubtedly Novient, given its leadership position and its blue chip customer base including names such as Accenture, KPMG, SAP, Compaq and the United Health Group. It has a quality management team who are committed to the company and determined to leverage the sales capability of other Solutions 6 products in the professional services and software arena.
This deal is a significant step in implementing our strategy. The Novient acquisition and the earlier acquisition of Keystone in London strengthen our long-term strategic position and add value to our core business.
CORPORATEFILE.COM.AU
What are your expectations for Novient sales and growth?
CEO NEIL GAMBLE
In 2001, Novient recorded sales of US$12.5 million and our forecasts are conservatively expecting 10 to 20 percent growth in 2002. In 2000, Novient achieved revenue of US$15 million.
CORPORATEFILE.COM.AU
Why do you consider 10 to 20 percent growth conservative?
CEO NEIL GAMBLE
Like many software companies in the US, Novient experienced a soft market in the latter part of 2001. There are clear indications, however, that market conditions are beginning to improve and Novient has identified a US$60 million pipeline of sales potential with nearly a third of that pipeline from established customers.
Our acquisition of Novient will enhance Novient's ability to convert a larger proportion of this pipeline. Our balance sheet strength is an advantage in an industry that is fragmented and under capitalised. The Solution 6 global reach will immediately take the Novient product to the Asia Pacific and European regions - a significant opportunity. The Solution 6 group has over 1,000 employees capable of implementing and supporting the Novient customer sites world wide. We retain available cash reserves of around $35 million.
A 10 to 20 percent sales growth target on US$12.5 million is well within reach. Longer term, with our established distribution channels in Europe, Asia and North America, sales will grow well beyond current levels.
CORPORATEFILE.COM.AU
What scope is there for cost reductions within Novient?
CEO NEIL GAMBLE
The hard work on costs has been done. Reflecting the advanced stage of product development, the Novient head count has been substantially reduced and costs are where they need to be. The emphasis going forward will be on growth. This is a very timely acquisition.
CORPORATEFILE.COM.AU
What have you identified as growth markets for your Professional Services and Software business?
CEO NEIL GAMBLE
In addition to our traditional base of accountants and lawyers, there is a significant opportunity to penetrate the wider professional services market. Evidence of this already exists with a number of key consultancy clients. Potential customers of our software include consultants, professional firms, internal corporate departments such as IT functions and any resource pool in an organization that needs to be managed and or monitored. This is where the overlap between Novient and Solution 6 is again a good fit.
In the short term, however, I will not allow customer satisfaction to be sacrificed nor allow us to be distracted from our existing core products and services. We will remain focused on our existing customers and ensure that they benefit from the enhanced capabilities and development capital we can now offer.
CORPORATEFILE.COM.AU
What progress have you made with the acquisition of Keystone in London?
CEO NEIL GAMBLE
At the time of buying Keystone, there was concern among some stock market analysts that the price was too high. That is not the case. There are a number of factors already in place that increase my confidence that the Keystone acquisition will be a success.
On acquisition, Keystone had free cash reserves approaching A$10 million. We are implementing cost savings in excess of A$3 million identified from our integration planning. Keystone executives have filled important management positions in the Solution 6 Group.
Since completion, Keystone has finalised a contract with the world's largest law firm, Clifford Chance. The contract is worth over A$20 million in new licence fees and services. Keystone complements our very strong position in Europe and enhances our ability to service the legal fraternity.
When you add these factors to Keystone's existing revenue it is clearer Keystone will add value in the short term and has significant long term potential.
CORPORATEFILE.COM.AU
What synergies will you look to exploit between Solution 6, Novient and Keystone?
CEO NEIL GAMBLE
Key synergies will come from product integration and future development and in sales and marketing of our products. "Go to market" strategies are already being developed in anticipation that the Novient merger will be approved by shareholders.
CORPORATEFILE.COM.AU
Do you have the management strength to ensure these acquisitions fulfill expectations and what management structure have you devised?
CEO NEIL GAMBLE
Yes, both Novient and Keystone have quality executives who can add value to Solution 6 and ensure that our acquisitions are successful. We will continue to operate with a regional structure for the sale and delivery of our products and services. The regions are supported by product "Centres of Excellence", the global coordination of which is the responsibility of a recently formed position filled by a former Keystone executive, Kaye Sycamore.
CORPORATEFILE.COM.AU
Some analysts are suggesting you may sell your IT services division given you've advanced your position in the Professional Services and Software arena. What is the future strategy?
CEO NEIL GAMBLE
The strategic combination of Professional Software and an IT Services business does not make sense and so we are seeking to divest the IT Services business to a party who might better realise its potential. We are in discussions with a party and, if all goes according to plan, we would hope to complete a transaction in July. We will announce details as soon as possible.
CORPORATEFILE.COM.AU
Thank you Neil.
For previous Open Briefings by Solution 6 visit www.corporatefile.com.au
For more information on Solution 6 visit www.solution6.com
SOH Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
