Softcat chairman Martin Hellawell confirmed to us yesterday that the £400m-turnover VAR has given thought to the possibility of an IPO.
Hellawell was at pains to point out that a stock market flotation is just one of a range of "long-term" options Softcat is examining as it grows from a small into a large company, the most likely option being that it simply remains as a privately held entity.
"Part of my role is to make sure we understand all the options and to keep those options open," Hellawell (pictured, bottom) explained. "It's all that corporate governance stuff Softcat has not done in the past but is trying to get more professional about."
But it got us thinking how few publicly listed resellers there are in the UK, compared with some other countries.
The US has Insight, CDW and Systemax, Germany has Bechtle and the Nordics has Atea and Proact, for instance.
With the obvious exception of Computacenter – which these days bills itself as more of a services firm – the vast majority of home-grown firms in the upper echelons of Top VARs are privately held. Even more so since Morse was bought. Alternative Networks, new Redstone owner Coms and Accumuli may be among the exceptions, but these are small-to-mid-sized firms on AIM, not the main market of the London Stock Exchange.
Of the real big guns, SCC doesn't appear to be a candidate while Kelway seems intent on completing a trade or private-equity sale by this autumn. Another candidate, 2e2, went bust last year.
So what would be the benefits for a firm such as Softcat to go public?
If Softcat is to displace Computacenter and SCC at the peak of the UK channel, the firm must move beyond its SMB and mid-market stronghold and deeper into the enterprise market. To do that, it needs to build brand awareness among the UK's largest blue-chip firms, something a listing on LSE would undoubtedly bolster.
Taking the IPO plunge would also improve its access to funding, which could be used for acquisitions or general working capital purposes.
Arguably, Softcat doesn't need the cash, and why meddle with a winning formula? After all, its sales have ballooned from £219m in 2011 to a projected £480m this year and that growth has come organically. But as Softcat grows larger still, the 30, 40 or 50 per cent sales hikes that have been the norm will get harder to come by, making bolt-on acquisitions more desirable (Softcat even recently revealed it is open to the idea of making a smaller acquisition for the first time in its history).
And opening up its shares to Joe Public would net Softcat's owners a tidy sum: with an operating profit of £28.2m last year, the firm's market value would be well into nine figures. Computacenter currently commands a market cap of about £860m, roughly 10.5 times its adjusted operating profit last year. Although it's doubtful Softcat would command as high a multiple, on the same basis it would have a market cap of £296m.
Then there are the downsides. Moving from private hands onto the stock market would mean increased regulation and red tape, and would subject Softcat to the prying eyes of investors.
Even more worrisome for a firm as fiercely entrepreneurial and independent as Softcat would be the fear that listing would spark a shift in the VAR's culture.
And note that Softcat is still not nearly as large as Computacenter when it listed in 1998 with revenues of £1.6bn.
But according to Gavin Lyons, chief executive of AIM-listed security services firm Accumuli, the upsides outweigh any challenges. Softcat may lack the annuity revenue streams investors so prize but it is a leader in its field, meaning it would be a hit on the stock market, Lyons said.
"Multiples are sometimes based on whether someone else could come in and do the same thing and it would be very hard for someone to establish the customers and the relationships Softcat has," he said. "Clearly, Softcat has a high degree of brand presence and so therefore I'm sure it would be worth a premium."
Lyons picked out access to capital and brand exposure as two of the main benefits of being stock-market listed.
"The third benefit is about supplier credibility," he said. "If you're a PLC, people know there is a bunch of compliance required and your accounts are publicly available." There are no major drawbacks, Lyons maintained, although he warned liquidity can be an issue for smaller stocks. "Being a PLC has been excellent for us," he added.
All this means there's plenty for Softcat to consider as it peruses its long-term growth options. If – and this is a big if – Softcat does one day take the plunge, then at the very least it would cement its status as one of the UK channel's biggest ever success stories and mean the UK has not one but two publicly listed super-VARs.
Softcat has grown at break-neck pace in recent years and now stands at a crossroads, as symbolised by its promotion this year to the category of "Large business" in the Great Places to Work rankings. All its suppliers and customers will be hoping that – whatever its long-term corporate trajectory – Softcat can remain the lean, mean sales machine it is today.
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