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More on Compugen purchase of Orbex Computer Systems

Here is some more coverage on the acquisition of Orbex by Compugen, so far I have not seen and negative coverage of the acquisition.

I have spent much of the last three weeks talking to Orbex’s current clients and pretty much everyone has seen the move as being a very positive one for Orbex and for their organizations. They like the fact that we are still going to be focusing on small and medium business (SMB) and also for the most part the Orbex team has staying the same. Our clients still have the ability to call the people they have gotten accustomed to dealing with and we are able to help them solve their technology issues.

The main difference now is that we are able to bring a lot more resources in to help as needed. This also gives Orbex the abilities to offer solutions such as Citrix, Vmware and Cisco Unified Communications to our clients without have to bring in a third party.

Here is a copy of the article:

 

“The Formal Part”IT in

Canada: Let me start by getting a little bit of background on the relative magnitude of the acquisition. How much larger was Compugen than Orbex at the time of the acquisition?HZ: There was a big difference – we have about 750 people, they had about 15.ITIC: How similar or different were your ratios of product to services sales?HZ: “They were more similar than different.” Harry went on to explain that one significant difference was the existence of an Accpac-centred accounting services business within Orbex, which was spun out separately to one of the Orbex partners at the time of the acquisition.ITIC: How important were the following factors in prompting the acquisition? An expanded customer _base, enhanced geographic coverage, acquisition of new product lines, acquisition of new service capabilities…HZ: The most important two things were: number one, culture – “a focus on good quality customer service, good long term relationships with customers” – and two, “interest in growing the business.” Harry made it clear that he wasn’t looking for a situation where the owner was interested in “cashing in his chips”, but rather, one where management was looking to gain access to the capabilities (investment and staff) needed to expand.

(With respect to my categories, Harry offered the following: there is some merit in the “new services capabilities” aspect – Orbex has technical staff that can be added to what Harry believes is Compugen’s “best in class national services capabilities in

Canada”. As regards “new product lines”, Harry says flatly that “it’s more the other way around” – that Compugen brings expanded product capabilities to Orbex customers.One important new product capability is Unified Communications. Harry believes that the ability to effectively penetrate the Orbex customer set with Cisco UC will be “one of our metrics for success” for the deal. He wonders, “can we provide the right level of ‘day 2 support’…cost-effective, scalable” ongoing support of small UC customers? This, Harry believes, will be one of the keys to realizing real value from the acquisition.)ITIC: What was important to your valuation of the company? Did you primarily _base_ your valuation on revenue? Profit? Assets plus a profit multiplier?HZ: Harry was clear that he does not do valuations _base_d on revenue. He states that in a small business, owner equity is tied up in the business, and that an acquisition provides the ability for the owner to “crystallize those assets.” Beyond that, the deal calls for Orbex’s partners to achieve upside on the sale _base_d on a three-year growth plan.ITIC: There seem to be rumblings of other acquisitions of similarly-sized reseller businesses through the grapevine – though in many cases, these (unlike the Orbex purchase) seem motivated by a desire for geographic expansion. What do you think 2008 holds for deals of this type?HZ: Harry noted that there are many small resellers in the market, so “clearly they fill a need”. Those that want to grow, however, have limited choices available to them. They can grow by “making bets in some areas” that pay off. His implication was that if these bets don’t pay off, though, a smaller firm may end up exposed – and that some may elect to hedge against this risk by joining forces with larger organizations.

“The Interesting Part”Harry began our conversation by describing the Orbex acquisition as an opportunity to learn about serving the SMB market – and especially, the “S” part of this market. He makes the point – one which I’ve made in the past as well – that SMB isn’t a single market, but rather, can be segmented into many groups.Harry’s approach to segmentation is very interesting. He believes that success in the small business market will hinge on the ability to “assess the customer before they become a customer,” through use of a maturity assessment such as that provided by Gartner, or as part of the Microsoft Infrastructure Optimization model. Harry believes that while an account doesn’t need to be large to offer the prospect of a good long-term relationship, they “need to have an understanding of where they want to get to.” This is, Harry says, the hallmark of “an account where we have a chance to be successful.”To evaluate customers in this way, Harry finds that his firm needs to get “beyond looking at IT.” Instead, they need to explore questions like:·                                 What is the customer’s vision?·                                 What are the growth opportunities in the customer’s business?

·                                 What is their management _style_, and level of management professionalism?

·                                 What is the “leverage in the business” – i.e., the extent to which they look to outside firms to provide non-core functions?

·                                 What is the level/pattern of delegation of authority within the customer’s business?

In the small business market, Compugen is looking for an engagement model that is “different from (that used with) traditional clients.” They look to act not as a product vendor, but to “take over day-to-day operations/management” of the IT infrastructure, while the customer “provides the business insight” needed to align IT capabilities with business requirements.In Harry’s view, most of the challenges involved in reaching this _object_ive revolve around “sales/sales engagement”. He is confident that Compugen’s managed services offerings – such as the eMerge asset management approach, which provides the ability to build to a consistent platform level and evolve customer infrastructure over time – will scale to meet demand in smaller organizations. What is tricky, he says, is to alter the traditional high-cost “press the flesh” sales approach with something that is better matched to the spending potential of small accounts.

 

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