Kiwi service provider consolidation continues

Integral acquires APL Plus, aims to become a $50 million business

Two more local IT service companies have combined in what is becoming a year of significant consolidation for medium-sized New Zealand ICT businesses.

Integral aims to become a $50 million business on the back of its acquisition of Auckland-based firm APL Plus.

While not disclosing how much it paid for the 40-strong company, or even their current revenues, Integral says the purchase is a significant investment.

Managing director Ray Noonan says the acquisition will help Integral become a $50 million dollar business by the end of its next financial year.

Just three weeks ago, IBM specialist Certus bought UtilityAP. Before that Auckland-based MacLean Computing bought Wellington’s ATL Systems. PBX specialist Vadacom merged with Brash Technologies. In April, Axon acquired Office Automation Software and in February Gen-i bought Computer Plus Otago. At the end of 2007, Fujitsu bought Infinity Solutions.

APL’s 40 staff bring “critical mass” to Integral’s burgeoning solutions practice, particularly around Microsoft, says Noonan. “We have grown organically in that space, but it is about having critical mass as opposed to taking longer to build our capability.”

Ullrich Loeffler, research company IDC’s software and services analyst, says the recent spree of acquisitions is a response to tightening competition for the mid-market segment.

“On the larger end of the scale we see increased investments from companies such as Gen-i, Fujitsu and Axon (to name a few) to adjust their services portfolio and engagement models to increase mindshare and penetration in NZ mid-market companies. On the other hand, we see companies that originate from the small and medium-small market segment acquiring companies to strengthen their current position and/or move up into larger customer segments,” he says.

This requires investments to achieve geographical coverage, services portfolio, specific technology skills and general business scale, Loeffler says. Consolidation also delivers better cost structures and improved buying power.

“IDC expects that we haven’t seen the end of the acquisition spree yet,” Loeffler says. “The small to mid-market business segment remains to be serviced by a large number of specialised ‘niche’ services providers which make prime mergers/acquisition targets.”

Noonan says that expanding its Microsoft business will not detract from Integral’s IBM partnership. “IBM remains a very strategic partner — it was and is the foundation of our business.”

With the addition of APL’s staff, Integral now has just over 130 employees, while both APL’s former owners have joined the company.

Lincoln Watson now heads the company’s business solutions division, while Drew Gilpin has taken on an evangelism role. “They fill strategic roles within our business. We are confident that they will fit into our executive team extremely well. They created an excellent business — we want to harness [their] skills and enthusiasm,” says Noonan.

Even though this is Integral’s fourth acquisition in as many years, Noonan says this is not the company’s preferred growth strategy. “Our organic growth is very strong — our acquisitions are made for strategic reasons rather than for revenue growth.”

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