Mid market UK ERP vendor K3 Business Technology Group’s appetite for acquisitions shows no sign of abating, as indicated by the announcement that it has paid £1.0m for the retail merchandising division of Azurri Computer Solutions Ltd (with up to another £0.5m due if gross margin targets are met over the next two years). This latest acquisition feeds both the retail and managed services parts of its business (see K3 and its business of six halves), thus making perfect sense as a business growth investment.
Azurri Retail is an IT support and implementation company which provides managed services as part of its offering, an area of business K3 is proactively building. Azurri is also a Microsoft certified partner which also marks it as a good fit with K3. It has 130 retail clients that include JJB Sports, the National Trust and Matalan so it comes to K3 with a good base and all-important recurring business.
Interestingly, K3 is not paying an up front premium – the £1.0m price matches the £1.0m of sales Azurri Retail delivered during the year ending December 2010. Canny K3 will pay more if gross margin targets are met, meanwhile it gets a business with an underlying profit of £0.4m and £0.6m of recurring revenue plus cross sell opportunities from its own retail and managed services businesses. We expect this deal will provide a nutritious meal for K3.
It will be interesting to see K3’s financial results for the full year, given that H1 operating margins grew from 18.4% to 18.9% despite acquisitions yet at the same time it was only acquisitions that kept the company growing (see K3 “Hydra” grows another head). That recurring revenue and promise of increased gross margins from Azurri will be most welcome.