Deal of the month: Aspective – Aspective casts its web Kennet Capital’s investment in start-up venture Aspective is motivated by

Having identified application service provision as a market with enormous potential, London-based information technology specialist Kennet Capital (Kennet) has completed its first deal in the sector. It has invested GBP3.2 million ($5.2 million) in Aspective, a start-up which aims to deliver integrated front office and e-commerce services to businesses across Europe.

The perceived opportunity for Aspective lies in the length of time it takes businesses to develop websites. Traditionally, systems integrators have been used to provide a bespoke service ie tailored precisely to the customer’s requirements. However, this implies a long development time – typically around five months.

By contrast, Aspective provides a ready-formed service which involves renting the required applications for a monthly fee and which can be up and running in 11 to 13 weeks.

The firm is hoping to attract interest from the e-commerce sector, where competition is cut-throat and getting a site configured rapidly is a pre-requisite for exploiting market opportunities. For customers such as these, Aspective is offering a service called Rapide’, where the emphasis is on the configuration of a standardised package in the quickest time possible. However, it also offers a service called Enterprise’, which caters for larger organisations by offering a degree of customisation.

The niche which Aspective is aiming to exploit is front office applications, as it perceives that new technology has not yet been exploited in this area. Explains David Carratt, who led the deal on behalf of Kennet: “It is a high value area where people are making active purchasing decisions and where there is not an installed base market, as there is in back office systems. It’s also an area where Europe has a unique advantage over the US because it is clear that mobile phones will be an important channel to market for e-commerce – what some people are now calling m-commerce – and we can build an ASP which can integrate direct sales forces, call centres, websites and mobile phones as a way of attracting customers. Because of that, Aspective has coined the term wireless ASP (WASP) – it’s something distinctively European about the company, and different from the ASP businesses which have been formed in the US so far.”

Kennet had been scouring the European market for an ASP opportunity since the middle of last year. By September it had reached agreement with Ives Group, an established IT solutions company in the UK, to demerge two of its existing businesses into a new entity. This proved to be a complex process. “Out of the total legal fees, only about 25 per cent of them were related to the investment, and 75 per cent were related to restructuring the business to get it to the stage where we could invest in it,” says Carratt.

Subsequently, Kennet was forced to search for a management team, as much of the existing management remained with Ives Group. Executive search firm Egon Zehnder was hired to find a chief executive, with the resulting appointment of Javaid Aziz, previously a sales director at Silicon Graphics’ European division. He is currently recruiting other members of senior management, including a finance director. In total, the firm currently employs around 80 staff, with numbers having increased rapidly over the last couple of months.

Carratt, who worked on the deal for Kennet alongside colleagues Lydia Wyatt and Martin Poulsen, has taken a place on the board. Explaining his role, he says: “I will be looking mainly at the corporate finance angle, how we do second-round financing and working out a timescale to go public. We’re planning to talk to investment bankers over the coming weeks to get their views on what we could do with the business over the next 12 months or so.” Also handed a place on the board is Stephen Ives, the largest shareholder in Ives Group. He is described by Carratt as the guardian of the vision’ for the company, making sure that it is steered in the strategic direction agreed to when the deal was struck.

As well as Kennet’s GBP2 million ($3.3 million), the deal sees 3i investing a further GBP1 million ($1.6 million). The latter had originally invested in Ives Group in 1989. A further undisclosed equity amount has been committed by Providence Investment Management, a fund which invests on behalf of private individuals. Legal advice on the deal came from SJ Berwin, Eversheds’ Cambridge office and Addleshaw Booth.

Carratt is confident that ASP has a bright future: “It represents the way in which a lot of services will be delivered in the future, and there will be as much diversity within the ASP sector as there is within the existing software industry. A lot of businesses we’re looking at at the moment have ASP elements to them.”

Deal of the month: Aspective

Total investment: GBP3.2 million ($5.2 million)

Kennet Capital investment: GBP2 million ($3.3 million)

(David Carratt; Lydia Wyatt; Martin Poulsen)

3i investment: GBP1 million ($1.6 million)

(Laurence Garrett)

Private investment: GBP200,000 ($328,000)

Legal adviser to Kennet Capital: SJ Berwin

(Steven Davis)

Legal adviser to 3i: Addleshaw Booth

(Nicky Higginbotham)

Legal adviser to Aspective: Eversheds, Cambridge

(Philip Spear)

Executive search agency: Egon Zehnder

(Robin Roberts)

Previous Kennet investments

Altitun (Sweden): A designer and manufacturer of optoelectronic components for the telecoms industry.

Consul Risk Management (Netherlands): A security software developer.

Cramer Systems (UK): A supplier of service delivery solutions to the telecoms industry.

Monis Software (UK): A specialist in software and services for the derivatives industry.

No Wires Needed (Netherlands): A developer of wireless LAN technology.

Orchestream (UK): A provider of quality-of-service software for IP networks.

Oxygen Limited (UK): A specialist developer of customer relationship management (CRM) systems.

Paragon Software (UK): A developer of data synchronisation software for wireless devices.