The news that AIM-listed mid-market VAR and managed services buy-and-build firm K3 Business Technology Group is no longer up for sale (see K3 puts up ‘For Sale’ sign for real) came as no great surprise considering that no one was prepared to pay the asking price for its erstwhile close rival, Maxima – and we all know what happened to them (see Smith brings Maxima to the Redstone party). There’s just never going to be a meeting of the minds on the value of a business that comprises so many moving parts each travelling at quite different speeds. In a way this was perhaps the saving grace for K3’s FY results, with the fast-moving parts making up to some extent for the slower ones.
K3’s headline revenues for the year to 30th June rose by 29% to £68.0m, of which 23% was acquisitive growth. Gross margins improved to 58.1% (FY11: 55.5%) but for various reasons operating margins trimmed by 30bps to 10.8%. EPS rose by a creditable 16%, and investors will get a 1p final div (FY11: 0.75p).
It’s when you look under the covers of K3 you get to see the vast variation in the speeds of the various profit engines. The Syspro/Sage division (37% of group revenues) runs a 23.5% adjusted operating margin (FY11: 25.8%); International division (19% of group revs.) at 29.0% (FY11: 25.8%); Microsoft UK division (AX resale – 37% of group revs.) just 8.9% (FY11: 12.2%); and Managed Services (8% of group revs) – well, no profit at all (FY11: 11.5%).
K3 is hugely acquisitive, completing five deals last year (including part of Maxima – see here). This is just the path that Maxima was pursuing before it got badly derailed because not all of the carriages were of a suitable gauge for the track, so to speak. I will be speaking to ‘chief train driver’ Andy Makeham later to discuss whether K3 risks hurtling through any red signals.