Growth has been a matter of simple business sense, company chief executive tells John Collins

Maurice Healy may have just completed a €59 million deal that rockets his AIM-quoted technology services company Calyx into the big league, but to hear him talk, the company's growth has just been a matter of simple business sense.

Perhaps it's a throwback to his first career as a bookmaker in Cork, but he has a straight-talking style and seems to be uncomfortable with the glare of publicity his company's recent acquisition of a larger UK rival has brought to bear.

Next week an extraordinary general meeting of Calyx shareholders will be asked to approve the £40 million (€58.4 million) acquisition of Network Parkers Holdings and MXC, two divisions of the UK's Matrix group. He predicts the combined group will have revenues of €125 million this year with combined staff of 400.

It's a far cry from the early days of Calyx when, in a management buyout supported by Anglo Irish Bank, Healy acquired the Irish voice and data business of Alphyra, which was building a European-wide payments processing business. Healy was the group managing director but, by his own admission, was tiring of travelling around Europe, not seeing his family, and having relatively little equity in the business. "It had become a job," he says.

In 2001, at the height of the dotcom boom, Alphyra was coming under pressure to sell its profitable but sluggish Irish voice and data business and concentrate on its payments network which looked set for continued growth.

The business that Healy acquired was a reseller of technology from big vendors like Microsoft, Cisco, Citrix and Avaya. At the time it would have been seen very much as "a box shifter".

But Healy and his team crunched the numbers and saw there was an opportunity to increase the higher margin services it was offering and get customers to sign up for contracts that would deliver recurring revenues.

"It was a simple enough model, it was where the money was," says Healy. "We made the strategic decision that time never again to bid for a big hardware deal or anything like that where margins are 3.5 per cent."

One exception is network hardware, where Healy says sales give it good visibility and likely services revenue for the following year. To support that model, Calyx built a network operations centre in Santry which allows it to remotely monitor and manage the infrastructure at customer sites.

"The way the industry views our sector has changed dramatically over the last couple of years," he says. "Did I have the vision to see all of that three or four years ago? Absolutely not."

The building of the centre was financed by taking the company public last year on London's Alternative Investment Market (AIM), with the rest of the funds earmarked for acquisitions.

Healy says that the additional services it can provide from the Santry base effectively make its existing customers a new market for Calyx. "We found ourselves at the end of last year in a situation where we could reduce our customers' costs, make them more effective, and increase our revenues and our margins on the back of it.

"Our service infrastructure is like a fixed cost now because the revenues exceed it. The more that we drive into the revenues, the more added margin can fall to the bottom line."

He estimates that his customers spend about 70 per cent of their IT investment maintaining current systems, but that this can be reduced to 40-45 per cent by outsourcing to Calyx.

Healy defines the Calyx customer base as the mid-market - the small to medium enterprises that make up the vast bulk of Irish businesses. But, in common with many of his competitors, some of the biggest names in Irish business are also on the customer list. The Matrix acquisition will add big UK names such as the BBC, Vodafone and the Bar Honda Formula One team.

"We all do something for the blue-chips," says Healy. "I'm not knocking that - it's a big part of the business, but it's a lower margin part. It's open-book stuff so they can dictate how much you are going to make."

Healy says, on average, he pays five times the earnings before interest, taxes, depreciation and amortisation (Ebitda) for the companies he acquires. With Matrix that figure rose to a multiple of 8.1, but he says that is based on the released figures from six months ago. Given the current run rate, the figure is actually 6.5, which Healy is happy to pay for the position it gives the company in the UK market.

The operation will continue to operate under the Matrix brand for the foreseeable future. "It's never a good idea to go in and make wholesale changes," he says. "One of the myths is you go in and stamp your authority. People come around to it themselves."

Perhaps that's a lesson learnt from Calyx's first major acquisition. It purchased Moss Technologies back in 2003, again supported by Anglo Irish Bank, and relatively quickly integrated the two companies. But within a month two former directors of Moss left Calyx, citing differences of opinion over the direction of the new business.

The experience certainly didn't put Healy off putting his hand in his pocket - Calyx made another six purchases in the Republic and the UK before announcing the Matrix deal last month. Like all the acquisitions he has been through, Healy says the numbers add up so that it will be revenue-enhancing immediately.

But the Matrix deal doesn't just signal a geographic expansion. Healy says it will complete the company's service portfolio.

"It's interesting to see the way the industry has gone. Everyone is talking about services and getting into this space. What we've done with Matrix will complete the services from wide-area network design and implementation to the desktop, and everything from security and compliance in between. We have found ourselves in that much sought-after situation where we are giving services on converged networks across Ireland and Britain and into that mid-market space."

The next move for Calyx will be a European expansion, although Healy thinks that probably won't happen until the first quarter of 2008. It is likely any such move will be in western Europe as he has experience there in acquisitions and building up businesses, dating back to his days with Alphyra.

Healy won't be forgetting his roots though - he'll apply the same model of recurring revenues, and remote support will continue to be provided from the centre in Santry.

FactFile

Name: Maurice Healy

Age: 47

Title: Chairman and chief executive of Calyx Group

Family: Married with two teenage children

Interests: An avid reader and sports fan. Has run four New York marathons and plays indoor soccer once a week

Career: Started his career as a bookmaker in Cork in his teens. Subsequently went to Trinity College Dublin as a mature student to study computer science. Was one of the co-founders of ITG Group in 1990 with Alphyra chief executive John Nagle. Bought out Alphyra's Irish voice and data division in 2002, which he rebranded Calyx

Why he is in the news: Calyx is about to seek shareholder approval of a £40 million (€59 million) takeover of two divisions of the AIM-quoted Matrix Group