Does acquisition breed competition?

Over the past 12 months, AIM-listed software supplier Torex Retail has embarked on an extensive and hugely eventful period of acquisition. Curiously, however, the company’s competitors also claim to be reaping the rewards.

Torex Retail has come along way in just two years. Back in late 2003 the company was a solidly profitable yet slowly expanding subsidiary of health-sector focused software and IT services business Torex. Then its parent company merged with healthcare IT group iSoft and Torex’s retail arm, which had previously been run as something of a cash cow, was sold off.

Providing a range of electronic point-of-sale solutions to retailers, this business has since gone from strength to strength.

Now valued at more than £370 million (compared with a market cap on flotation of £60 million), Torex Retail has seen revenues and profits rise exponentially. In 2004 profits rocketed 65 per cent to £11.3 million. Even before many of its recent deals had been completed, analysts were tipping this figure to top £20 million in 2005.

The major acquisitions have come thick and fast. November 2004 saw the company purchase techMARK-listed software developer Alphameric’s retail arm for £30 million. Executive chairman Rob Loosemore and chief executive Chris Moore have subsequently overseen the purchase of US-based Retail Store Systems for $27.9 million, not to mention London-listed peers XN Checkout (for around £80 million) and Anker, for the best part of £100 million. A triumvirate of smaller deals have also been secured.

Intriguingly, however, while Torex goes about its business, several of its competitors appear to be benefiting from its actions. Take fellow AIM company K3 Business Technologies, for example.

During the first half of this year K3 saw its own retail division ‘substantially’ exceed expectations by securing seven new orders worth a combined £6.7 million.

This total already exceeds K3’s retail-based achievements throughout the whole of last year and chief executive Andy Makeham reasons that ‘Torex is driving customers to market. They’re consolidating [the sector] and a lot of the customers from companies they’ve acquired are now looking around at what other solutions are available.’

Nikki Beckett, chief executive of NSB Retail – yet another competitor – has noticed a similar trend.

‘Torex isn’t being well perceived by retailers in the UK [because it is] reducing the choice available,’ she concurs. ‘BT (NSB’s distribution partner in the UK) have even told us that it is helping our business because we offer an alternative solution.’

Yet some analysts are more cautious. ‘I think it’s something every competitor in the market will see,’ comments one industry expert. ‘Torex is losing some clients but they’re picking up plenty of new ones too.’

His reasoning is simple. When you acquire a business you’re providing a fresh start for everyone. Some clients of the acquired company will dislike the new owners and will move on, others will take the opportunity to look around and see what else is available (even if they have no real desire to move elsewhere) and the majority will carry on regardless – in the short term at least.

Completing a series of acquisitions very quickly is thus a risky process by its very nature. But as Torex appears to be showing, it can also be highly beneficial.

Leslie Copeland

Leslie Copeland

Leslie was made Editor for Growth Company Investor magazine in 2000, then headed up the launch of Business XL magazine, and then became Editorial Director in 2007 for the online and print publication portfolio...

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