It has been announced this afternoon that Chris Ston
e, CEO of Northgate Information Systems, is to step down as CEO. Northgate also announced its ‘12th successive year of increased profitability”. Revenues increased by 22% to £816.2m in the year to 30th Apr 11. Operating Profit before depreciation and amortisation was up 8% at £127.5m and operating profit (incl depreciation and amortisation) was £81.1m – up the tiniest amount on the previous year.
Chris Stone called me early today to let me know of his departure because, as he said, I was one of the very first people he spoke to when he took up the MD role at MDIS is 1999. He'd joined from running Digital (DEC) in the UK. At that time MDIS (it was soon renamed Northgate IS) was, well let’s be polite, a ‘basket case’. They were losing money hand over fist and their share price had plunged. I have the notes from that very first interview with Stone when he uttered the memorable line “MDIS has been extremely successful in managing to minimise its opportunities”. When Stone was appointed the share price was 19p, the market cap was c£40m – for a £120m revenue company losing £21.9m in FY99.
But Stone really turned it around so that by 2007, KKR paid almost £600m - at 95p per share - for the company. Any long suffering shareholders left must have been truly delighted. Most expected Stone to leave then (afterall he’d made c£17m personally from the deal) but he stuck with it (indeed reinvesting some of that back into the company). I would suspect that investment will make another tidy sum for Stone when KKR dispose of Northgate as it is clearly now worth rather more than £600m!
To have grown 20%+ in the last year was pretty impressive! Stone tells me that their Managed Services operation were up 20%. Their HR products and services always get ‘Top Quartile’ in the analyst assessments. Only blot is their Public Sector operations which Stone described as ‘tricky’. But ‘an ill wind” and all that. More stable revenues often boost cashflow. Northgate’s Net Operating Cashflow was up from £96.2m to £125.6m in the year.
My take on all this is that obviously KKR (like any other PE house) will be looking for an exit soon. If Stone had stayed on he’d have to be part of the sale. Ie he’d have to commit to another 3+ years at the helm. This way, KKR can appoint another CEO as part of their ‘preparation for exit’. Of course, some trade buyers might see the absence of a CEO as an advantage – so I wouldn’t be at all surprised if KKR get approaches driven by today’s announcement. Indeed, as Northgate is made up of a number of quite discrete businesses, the value of the bits might well be greater than the whole. Ie a breakup might well be the preferred exit.
As for Chris, he says he has ‘no idea’ what he will do next other than saying that, as he’s only 48, he feels he’s got ‘another big job in him”. I’m sure he will not be short of offers!
Chris and I have had many ‘robust’ conversations. Stone is very down-to-earth and does not suffer fools gladly. Conversely he always seems to relish a damn good argument if it is based on substance. Maybe that’s why we have always had such a good relationship! I wish him well.