IT entrepreneur Mike Harris has embarked on a five-year buy-and-build strategy that he believes will put him at the helm of a group with annual sales of £70 million to £100 million.

Considering that Voicecomms Warehouse (VCW), the fledgling group of which he is chairman, is predicting current year sales of between £8 million and £9.6 million, he clearly has a steep hill to climb.

But Harris has been here – or hereabouts – before, although not on quite so ambitious a scale. In October 2005, he sold his previous business, the £13.9 million turnover Total Network Solutions (TNS) based in Oswestry, to BT for a healthy, but undisclosed, sum.

In the same year, he launched his current venture, Voicecomms Warehouse (VCW), from the same Shropshire town, and in August this year he dipped a toe into the M&A pool for the first time in his career.

In a deal funded entirely from his own resources – and courtesy of the proceeds of the TNS disposal – specialised security distributor Fresh Egg Network joined the VCW operation to become what Harris described as “the second half of the jigsaw” and the foundation on which the future expansion of the business will be based.

The two component parts of the merged business share a lot of common ground. Fresh Egg is a distributor for Fortinet, one of the UK’s biggest-selling computer firewall and anti-virus devices; so too is VCW. Combined, they represent a formidable force, and by far the largest Fortinet distributor in the UK.

“We also have a similar business ethos,” said Harris. “Fresh Egg had gathered an excellent team of people who were good at educating re-sellers in the way their products could address the various security issues of customers, such as banks and government departments, who need to protect their data at the same time as allowing access to it.”

The common culture was sufficiently strong to enable Graham Fox, Fresh Egg’s founder and managing director, to move seamlessly into the same role in the enlarged business, which trades as VCW Security Ltd.

“He also has a stake in the business, as has Paul Ward, managing director of the group’s other arm, VCW Voice, which has been set up to sell IP (internet protocol) telephone systems,” said Harris.

Fox himself takes a pragmatic view of the events that led to Fresh Egg’s end as a separate entity. As it often does, it all boiled down to cash.

“We had contracts with some of the country’s leading vendors, and in addition were engaging with some of the country’s top re-sellers, ISPs and managed security service providers,” said Fox. “But as a privately-owned and funded company, we hit a glass ceiling and needed funding for future growth.” He added: “VCW represented the stability we needed as well as the additional infrastructure that was deemed essential for growth. The merger represented an opportunity for the new company to take the normal distribution model to the next level, with the funding in place to grow and invest in our partners.”

Harris also acknowledges the synergies. Fresh Egg had several more years’ experience in the marketplace, and had built a good name for itself, enjoying the solid reputation that spells security for manufacturers.

What Harris brought to the table was his own pedigree as a successful entrepreneur, and a stock profile that permitted his company to guarantee next day delivery of almost any component – a strategy that lifted VCW above rivals who relied on price alone to win business.

“Our differentiator is that we employ highly-skilled people who are able to bring real value to our customers,” Harris added. “I also knew that because Fresh Egg had entered the market far earlier than us, their depth of knowledge would be even greater.”

Harris expected that the merger of the two businesses would be successful, but even his optimism has been outstripped by the facts. “We’ve made one and one make three,” he stated. “Not many people involved in a merger or acquisition understand, prior to the deal, what they are getting out of it. That wasn’t really true in this case, although we have been surprised at just how successful it has been. Instead of the 200 per cent increase in turnover we expected, in the first two months it actually rose by 300 per cent.”

Harris thinks the reason is obvious. “Our focus on the marketplace has been doubled,” he explained. “The time we once spent competing against one another is being spent instead on achieving better results.”

Wiping out the competition

One overlooked outcome of the deal, says Harris, is the knock-out blow it delivered to a rival, whose contract with Fortinet has reportedly been terminated. Wastage is not uncommon in the sector where, according to Fox, competitors come and go with some regularity. In fact, at the last count no fewer than six had dropped by the wayside since 2002 when Fresh Egg was formed.

Meanwhile, the Fresh Egg vision, to act as a technology incubator eager to introduce innovative products to the end user, is being pursued enthusiastically in the new company. Harris explained: “We are always looking for high-quality products that give us a competitive edge – products that include interesting technology and which do things in a non-traditional way. We can then explain to our customers why our products are right for them. That kind of approach needs an educated and highly-motivated sales team.”

It also opens the door to generous margins of the kind that other distributors – those tied to the giants of the technology world – can never hope for. “The very large vendors will set the customer’s expectations on budget, then consume most of that themselves, leaving very little for their re-sellers,” Harris added.

Having completed his first acquisition in his 15 years in business, he seems content with the outcome. “It was a toe in the water, and the early evidence is that it looks successful, but that doesn’t mean I’m going to rush into the market with a ‘must- buy’ attitude.

“All of my other businesses in the past have grown organically, and that is also the plan for VCW. But if the right opportunity presents itself, I would certainly do it again. If any more opportunities like Fresh Egg come along, we would be foolish not to look at them,” he added.

Whether he would pursue the same do-it-yourself approach to future deals remains unclear. In the Fresh Egg acquisition he relied on the know-how of “a very good finance director” who checked the figures, and what experience he had picked up for himself when selling TNS to BT.

“We learned a lot from that experience – in particular that speed of completion is important in a deal. A deal that drags on while advisers cross this t and dot that i is in danger of losing the magic of the moment,” he said.

“We knew that for this acquisition to work we had to get a conclusion in four to five weeks. The only way to do that was to try to mitigate the risks of the acquisition in a way that didn’t stifle its speed and timing. The real proof of the pudding will be known in the next 12 months.”

Harris has a five-year horizon on this project, after which time he will be looking for an exit – either a trade sale or an IPO. “I’ve never gone the IPO route in the past, but there is something from a business point of view that might tempt me this time. But a trade sale would be just as good,” he said. “And anyway, we will only sell if the market conditions are right.” He stresses that he is in no great hurry. The premises VCW occupies enjoy low rents, and are secure for several years to come.

Until then, he has the growth of the business uppermost in his mind. Is the £100 million target achievable? According to Harris, yes. “For three out of the 15 years that I was associated with TNS, I managed to get the company on the Fast Track 100, The Sunday Times’ league table of Britain’s fastest-growing private companies. I believe I can do that again with VCW.”