The diversity of performance in the UK mid-market software and IT services sector is drawn into sharp relief by today’s announcement from industry stalwart, Maxima, that it is once again in trouble. After a ‘swings and roundabouts’ first half (see here), Maxima has not been able to close some key sales and has had ‘execution’ problems in delivery. Net-net, it’ll be a ‘miss’ for the FY (ending 31st May), with revenues expected to be light by as much as 12% (£45m). As Maxima had yet to return to net profit in H1, you can work out the rest for yourselves. Management has put up the ‘for sale – whole or part’ sign, appointing investment bank Houlihan Lokey to assist with a ‘strategic review’.
This is such a shame. We had hoped that the ‘new’ (ex-Netstore) top team of Graham Kingsmill (CEO) and David Memory (CFO), appointed pretty much two years ago, would be able to sort out the many diverse bits that Maxima had become. The strategy looked fine, but six months later they were dealt a savage and unexpected blow when key software partner QAD withdrew Maxima’s distribution rights (see here). QAD represented over 15% of Maxima’s profits, so it was never going to be plain sailing from there on in. Kingsmill had been trying to rev up Maxima’s ‘growth engines’ (Microsoft Dynamics, Citrix, Connectivity, Cloud), which account for some 25% of the business, but the pressures on the ‘legacy’ businesses seem to be pulling rather harder in the opposite direction.
We have mischievously suggested that Maxima would be an ‘interesting’ target for highly acquisitive (and profitable) mid-market peer K3 (e.g. see K3 and its business of six halves). The revenues of the two groups are very close, but as of yesterday, Maxima was capitalised at some £21m (down 10% ytd), compared to £55m for K3 (up 12% ytd). Maxima’s shares are down a further 20% as I write. Can’t believe K3 CEO Andy Makeham isn’t running his sliderule over this ‘opportunity’!