Move comes hot on the heels of multimillion euro acquisition at the start of the year, writes Gordon Smith

TECHNOLOGY SERVICES firm PFH has formed a new finance company that will offer blue-chip customers long-term leasing arrangements as an alternative to buying IT systems using their own capital.

It’s the latest step in an expansion plan that saw the firm acquire the Irish arm of Siemens Enterprise Communications (SEC) earlier this year.

The deal looks set to bring the 25-year-old company revenues of more than €45 million this year. The company also plans to increase staff numbers to more than 200 by the end of the year, with growth primarily in sales and technical roles.

It’s a relatively unusual transaction for the Irish IT services market because most merger and acquisition activity usually involve indigenous firms doing deals with each other. What’s more, PFH wasn’t the only bidder for SEC, according to founder and managing director Paul Hourican. “We came late into the development but we executed pretty quickly. Siemens wanted to ensure the continuity of its business,” he said.

Hourican described the multi-million euro price as “reasonable” and pointed out that it represented a risk for Siemens too, since it needed to be guaranteed that its networking, switching and unified communications products would still be sold in Ireland in years to come.

The SEC acquisition has given PFH access to several high-profile customers including the HSE, UPC and many multinationals.

At a technology level, Hourican said the deal makes sense because voice calls and data traffic are increasingly being handled by a single network. PFH’s traditional strength is in data networking and the SEC acquisition now gives the company expertise on the voice side of the equation – 34 employees, the majority in technical roles, transferred to PFH as part of the deal.

The acquisition has also led to net job creation, initially because of the need to add backoffice functions for the former Siemens business that had previously been managed from the UK. PFH plans to create 25 new jobs by the end of this year with a further 55 planned for mid-2011.

PFH’s other major move this year has been to set up a separate financing company to fund customers’ IT purchases. While technology leasing isn’t new, typical deals tended only to cover the cost of the hardware. Hourican said this would be different as it covers the cost of all services and maintenance.

If the move suggests a confidence out of kilter with the times, Hourican countered by saying that IT’s stock has never been higher for many businesses. “At a corporate level, IT has a good hearing at the table since the downturn happened. Before, it was ‘fire money at the problem’. Now, people are asking how IT can help,” he said.

Paying for IT over the lifetime of a contract, rather than in one lump sum, dovetails with how Hourican sees technology. “I view IT as a service; no more than turning on the light switch. It’s got to be streamlined and efficient to that level. People have to move away from the idea of acquiring IT,” he said.

The plan also makes sense for PFH because a typical finance agreement will last for five years, giving the company opportunity to stay closer to customers for longer and providing the chance to sell additional IT services.

Hourican said it was unlikely PFH can grow its revenues substantially from purely organic growth without further acquisition. The company is no stranger to deals, having bought another IT services firm, CK Business Electronics, in 2006. The company came close to other acquisitions since then, but PFH walked away because “the fit wasn’t right,” says Hourican.

The company is currently evaluating several possibilities and Hourican does not rule out another deal before year end, but any new acquisition will be focused on gaining new customers rather than adding technical expertise.

“Taking customers is expensive and there’s attrition. Customers don’t move from one supplier to another that readily,” he said. Strategically, a company that can offer a wide range of technologies and services automatically becomes more attractive to a certain calibre of customer. A lot of the bigger customers are looking for fewer invoices.”

Separate to any deals, PFH is looking to shift the mix of products and services business. Currently, products bring in 65 per cent of revenue and services account for 35 per cent, but the latter business is more profitable than the single-digit margins offered by IT hardware sales.

Rather than trying to grow overall turnover organically, Hourican said PFH will focus on driving its sales force to do more services-based deals with customers.

Looking to the future, there is one looming cloud on the horizon – literally.

Hourican is frank enough to admit what many in his position privately fear: cloud computing – the IT industry’s next big thing – could take a serious chunk out of the company’s hardware business. The cloud concept is based on the idea of taking parts of an organisation’s IT systems, hosting them off-site in a data centre and delivering this back as a service.

Despite this, Hourican still believes it’s important to be in the product business “because it opens the door to everything else”. He said making the move to cloud computing is not simple or cheap and will require IT services – which is ultimately where he wants the company to be.

“It might mean we sell less tin but I think it’ll involve an increase in services. There will be a business in it [the cloud] for PFH going forward. It does scare me a little but the fact is we have a such a large services business and the strategy is to grow that.

“Somebody’s going to have to grow with the customer in that space and if we keep our comms, security and consultancy business growing, then I think we have a space.”