"Price and quality" issues scupper Xploite M&A

Nest egg: Xploite is allowing shareholders to cash in on about £10m of unneeded cash reserves

Acquisitive reseller group Xploite is taking a break from large-scale acquisitions after ruling out a number of targets based on value and calibre.

The West Sussex-based firm today issued a stock exchange statement detailing a tender offer which will allow shareholders to cash in on the firm's strong balance sheet. Xploite sold IBM reseller Anix to ACS for £31.5m in May and the company has since looked at a number of larger acquisitions.

But chief executive Ian Smith told CRN: "We have declined to go ahead with them based on principle reasons of price or quality."

Following the completion of the tender offer, Xploite intends to re-enter the M&A game at the smaller end of the market, where Smith claimed better value and calibre were to be had.

"I am very confident that you will see us back in the market," he added.

Smith indicated that, following the disposal of Anix, his firm had up to £10m in the bank which could be redistributed. Shareholders are now being offered the chance to sell 46.57 per cent of their shares, but can tender to sell a greater or lesser amount.

The shares will be bought by investment management firm Brewin Dolphin, before being repurchased by the company. Each of Xploite's directors will tender 60 per cent of their shares. The results of the tender offer will be announced in about a month's time.

"We do not need the level of cash that we have created," said Smith. "The reality is that we have £9m or £10m cash profit and we just do not need that amount. It seems fair to give that to shareholders."

If the tender offer is completed successfully, Xploite will comprise Storage Fusion, now its only trading business, as well as £3.1m cash, deferred considerations of £4.1m from earlier disposals and liabilities of £1.25m.

Xploite indicated today that, with its fiscal year ending in 10 days, Storage Fusion is expected to "considerably underperform against its own projections and market expectations". A "significant" yearly loss is expected for the storage resource analysis (SRA) specialist.

Previously, Storage Fusion's strategy was to sell the SRA software on an enterprise licence basis, but Xploite claimed this "introduced too many obstacles to significant take-up of the product".

The pricing strategy was realigned in July, and 11 customers have since come on board. Smith was confident Storage Fusion would be back in the black next year.

"We are very positive," he said. "I would go as far as to say that it [the new pricing strategy] has transformed the business."

As it searches for further acquisition targets, Xploite indicated the structure and salaries of its board of directors would be monitored.

"At board level we will look to reduce our personal incomes while we look for our next consolidation play," added Smith.