Derek Lewis is joining forces with Schroder Ventures, which backed the highly successful Technology buyout, and Andrew Needham, head of corporate finance at solicitors Addleshaw Booth & Co, to launch an IT services group building business, DataGroup.
Derek Lewis has spent 28 years in the IT industry, working for IBM, Olivetti and ICL, and leading a number of successful buyouts and start-ups including Technology plc (now Tplc), where he transformed losses of nearly GBP19 million into profits of GBP3.5 million in the first year after the buyout. More recently, United Utilities asked Derek Lewis to form a business outsourcing from the service departments of its constituent companies, NorthWest Water and Norweb, following their 1995 merger. Within six months, 3,000 staff had transferred to this new business, Vertex Data Science, which was ready to begin trading. The group made operating profits of GBP27 million in its first year; by the end of its second year, with the first external contracts secured, Vertex had grown its profits to more than GBP30 million. DataGroup will also be able to draw on the additional transaction skills of co-founder Andrew Needham, who more than two decades’ experience in IT deals.
During the next three years, DataGroup aims to spend GBP150 million (ecu 220 million) to acquire small to medium-sized IT services companies. The group will focus on network consultancy, desktop services/office automation, Internet services/e-commerce, application development/maintenance, and training and software maintenance companies, targeting businesses with high growth potential and sales between GBP5 million and GBP20 million.
DataGroup’s strategy will be to “group together, operate and grow” the companies it acquires, Derek Lewis said. The group structure is designed to help good companies take advantage of market opportunities they would otherwise have lacked the critical mass to address. DataGroup will unlock value for vendors, many of whom it hopes will continue to play an active role in the development of their companies under DataGroup’s aegis.
DataGroup anticipates acquiring businesses with a combined value of GBP50 million to GBP100 million per annum, although Derek Lewis said it would also look at much larger individual transactions.
Schroder Ventures will provide private equity funding for DataGroup’s acquisition programme. Full details of the funding structure are confidential, but director Graham Wrigley revealed that Schroder has provided an initial tranche of capital through UK Venture Fund IV and “will bring in further funds as DataGroup goes forward”. The group will raise debt funding for individual acquisitions on a case-by-case basis.
Discussing Schroder Ventures’ attraction to DataGroup, Graham Wrigley pointed to the house’s long and profitable association with Derek Lewis, Andrew Needham’s track record, its own previous success with build-up deals and the impressive results achieved from build-ups by groups such as Gartland & Whalley.