How Touchstone upscaled through acquisitions

Source: Technology Digital

Date :24/07/2007 11:25:16

Touchstone group's CEO Keith Birch talks to James Hurley about his close association with Microsoft.

By James Hurley

You’d have to be a fairly extreme sort of technophobe not to be familiar with Microsoft’s ubiquitous office software, but it’s far less well known that Microsoft also has a suite of business solution software. As the number one UK partner for these solutions in the UK, the AIM listed Touchstone Group has been able to leverage numerous advantages from its association with such an enormous global brand.

“Everyone is familiar with Microsoft Excel, Word and PowerPoint, but not many people are aware that the company develops software that can compete with those created by SAP (the world’s largest business software company),” says Keith Birch, Touchstone Group’s CEO. “It is a significant brand and they have big ambitions for greater market share. We’re finding that we’re working with people who wish to look at what Microsoft is doing– some of our clients have bought on the basis of Microsoft support and their strong balance sheet.”

A crucial association

Birch joined Touchstone Group in 1982 as its first employee and became Managing Director in 1986. He has been responsible for much of Touchstone Group's growth and development. Birch has overall responsibility for group operations, concentrating on driving acquisition strategy.

“I’ve been stitched into IT for my 25 years at Touchstone Group,” he says. “I suspect I have got more of a sales and marketing bent, but my responsibility at Touchtone is merger and acquisition strategy. I spend a lot of my time dealing with the city, together with companies that we’re buying and dealing with the direction of management structures post acquisition.”

As a 25 year-old IT software solutions and business consultancy provider, Touchstone Group is able to offer a wealth of experience over both broad and specialist market solutions. “Our comfort zone is companies with a turnover between £50 million and £500 million, which is a big marketplace and we know it better than most,” he says

As a technology vendor rather than author, the partnership with Microsoft and other technology vendors has been a crucial one for Touchstone Group. When combined with its strong acquisition strategy, the strength of its strategy becomes clear. To illustrate this point, Birch cites the example of the company’s £4.5 million deal with equipment hire company Speedy Hire Plc, the biggest in Touchstone Group’s history. “They bought software from us specifically because we have expertise in the Rental sector,” he says.

Speedy Hire selected Microsoft Dynamics AX to provide its operations with a more streamlined, efficient service, to reduce transaction costs and improve access to management information. Touchstone's acquisition of rental software firm Global IT around 18 months earlier had been pivotal to Speedy Hire’s decision; Global IT had built a specific rental product based on Microsoft Dynamics AX. When Touchstone acquired Global IT, it gained the software product and a large team with extensive knowledge of the rental business.

“We’ve traditionally used acquisitions to give us scale,” Birch explains. “We might acquire a smaller competitor and swallow their client base or use them to give us improved regional coverage. More recently we’ve bought businesses that give us specific software in particular markets.. We’ve always been specialist in certain markets but we’ve never owned our own software. We’ve acquired three businesses in the last three years that have developed specialist market solutions all based on Microsoft business technology software. That’s why Speedy Hire chose to work with Touchstone.”

In 2005, Touchstone Group purchased Jersey-based software consultancy Landsteinar for £2.9 million. “They had their own offshore wealth management software that again, they had developed using Microsoft Business Technology software. We’ve created these niche markets for ourselves and we’ve grown them on the back of our scale. Because Touchstone Group is a public company, it has allowed these smaller businesses to do even better.”

A watershed moment

Acquisitions have been a crucial part of Touchstone Group’s history and the company has completed ten since it first floated on AIM in 1998. Identifying them, paying the right price, and integrating them has been a core part of a business plan led by Keith Birch that has seen Touchstone Group’s turnover grow to£30.2 million this year, with the company doubling in size over the last three years, incorporating an organic growth rate of around 25 percent in the past year It’s a strategy rooted as much in Birch’s personal management style as trends in the marketplace.

“Of the ten acquisitions that we’ve done, I’d say nine and a half have been a success,” he says. “The biggest mistake you can make in management is thinking that you know everything. You need access to good advice and I’ve always made sure that I’ve had that alongside me, whether in the form of professional advisors, people I know in the industry, good contacts or members of my extended business family. These things are very useful so you can minimise mistakes but you’ve also got to learn at the coal face.

“You can’t afford to make the mistake of managing a people based business in a carefree, aggressive manner. People are your key asset. They go out of the door at 5.30 pm and if they come back the next day that’s a bonus. You’ve got to make sure it’s a consistent bonus.”

Birch is surprised that many of the businesses that he’s acquired over the years had forgotten this by the time Touchstone Group moved in. “Our arrival has often been like a breath of fresh air. We may be a larger company than the one they are used to, but at least that allows us to have more of a HR orientation, where we’re passionate about developing staff skills and client satisfaction. It’s an important subject for us.”

Of all the many acquisitions he has been involved in, Birch says that the very first – the 1990 purchase of RAM Computers - was the most significant. “It was a watershed moment. I went from naught to 100 miles per hour very quickly. I remember that I thought I was out of my depth. We had more than doubled the size of the business overnight and I had skills and types of people I’d never managed before, and clients, products and technologies I’d never been exposed to.

“I had to get my arms around it and motivate those people. It was the most frightening time, but also the most invigorating. I learnt a lot from it. It framed my approach to dealing with people, and I still look back at a time when I had to prove myself in front of people and I had to make sure all they saw was the honest truth. As soon as they see something false, everything you say can be tainted. A straight backed, honest approach has been the tenor of all of our deals. While I no longer do all of the acquisitions, it’s nice to see my Managing Directors have a similar sort of approach – it’s warming to see it done in a consistent and personable way.”