Business expansion challenges – To buy or not to buy

Simon Rogan is in the enviable position of having founded and grown his company, Sirocom, without ever having to seek external financing. However, relying on its own resources is a limiting factor for growth, so the group is facing the dilemma of whether or not to seek external financing to expand more rapidly.

While the start-up phase of a company’s life can be make or break, the next step in the evolution of a growing business can be even tougher. The GrowthBusiness ‘Breakthrough Clinic’ gives one company at a crossroads of expansion the chance to gain free advice on the possibilities for growth from an expert business adviser.

Sirocom’s company history

Simon Rogan is in the enviable position of having founded and grown his company, Sirocom, without ever having to seek external financing. After many years spent providing high-value IT and communications solutions for blue chip corporates such as Xerox and AT&T, he set up an IT business in the early 1990s, but following the acquisition of his shareholding by his fellow partners he was looking to invest his £30,000 proceeds in a new venture. Thus, Sirocom was born.

Initially, the company concentrated on providing secure remote branch-to-branch communication links. However, as the market’s evolved so has the company and the services it offers. Recognising its strengths – ‘best of breed’ technology and technical know-how – Rogan orchestrated a move from a technology-focused organisation to a service-based ethos. Initially, the company diversified into providing additional internet-based services but Sirocom continued to follow the market to become a leading global virtual network operator, managing national and international converged virtual private networks and remote workforce solutions that provide combined voice and data communications.

Sirocom has more than 500 customers including Abbey, HSBC, STA Travel, BSkyB, Cadbury Schweppes and the Royal Borough of Kensington and Chelsea. They were attracted to Sirocom by its value proposition and offer of improved service standards. Sirocom’s success has not gone unrecognised and the company has been included in the 2005 Gartner Magic Quadrant for Pan European network service providers, appeared in the Sunday Times Tech Track 100 for the past four years and the Independent on Sunday Deloitte 100.

According to research conducted by the Economist Intelligence Unit (EIU) in a global survey of 254 senior executives, significant cost savings are available through remote working. Lowering broadband and Voice over IP (VoIP) costs will drive the growth of remote working with 80 per cent of home workers using VoIP in two years’ time according to the EIU. Given this growth, Sirocom is well placed to capitalise and is forecasting significant growth itself over the next three years.

Current business expansion challenges

Rogan has identified a number of challenges as Sirocom tries to manage its expansion. The company has no debt finance, having funded its own growth from cash flow since inception. However, relying on its own resources is a limiting factor to its rate of growth. Rogan is therefore facing a decision whether to seek external financing to enable the company to expand more rapidly and take full advantage of the current growth in the market. Possible investment could come from business angels, venture capitalist or bank finance, and a decision would need to balance the needs of the business with the requirements of the investor.

Rogan is also currently considering acquisitions as a possibility for future growth and is keeping an eye out for suitable targets. He is also not averse to the prospect of Sirocom one day being acquired by a parent company with more resources, though Rogan says there is more he wants to do with the company before being completely bought out.

Breakthrough Clinic’s Advice

Philip Atkinson, a partner at PKF (UK) LLP, visited Sirocom to witness first-hand its approach and current challenges. Having discussed expansions plans with managing director Simon Rogan, he offers advice on how best the company can tackle its growth going forward.

Sirocom has become a leading global network operator benefiting from good management, a strong service ethos, high-quality products and knowledge, and a strong reputation in a rapidly growing market. The company already enjoys the benefits of an enviable customer base and, given the real prospects for further rapid sustained growth, it’s in a good position to double in size within the next three years.

This growth is not only being driven from within the UK but from around the globe. Sirocom has already opened offices in Los Angeles and Melbourne and is soon to open a further office in Sydney, to complement the existing UK sites in Weybridge and Wakefield.

Although it’s tempting to grow quickly and acquire complementary or competing businesses along the way to achieve critical mass, there is no evidence to suggest that Sirocom is at a disadvantage being relatively small in size compared to its multinational competitors. On the contrary, it’s been able to exploit its size and flexibility to operate within a niche, principally servicing financial and retail multi-site operations, building upon its expertise and securing contracts that are considered too small for the global players.

Moreover, research by analysts suggests that the majority of mergers and acquisitions fail to deliver the expected benefits, and many have a detrimental effect. Blame is frequently attributed to cultural differences and de-motivational problems among key personnel. One impression that strikes you when you visit Sirocom’s well-appointed offices in Weybridge is the immense pride that employees feel in working for the company and the high importance that management and employees place on creating a happy environment. The directors of Sirocom would be well advised to ensure that they maintain this atmosphere as the company grows larger. It’s already set for further rapid growth, so burdening a management team by making and integrating acquisitions appears nonsensical.

Improving business systems

The company’s turnover has reached £26 million for the latest financial year, with 90 per cent of revenues coming from recurring managed service contracts. Despite the high rate of growth achieved to date, Sirocom’s processes, procedures and systems have not developed as quickly. Consequently, although these systems are robust, they are proving increasingly inflexible and burdensome and are unlikely to cope with further sustained growth.

For a company that prides itself on its service standards and uses this as a differentiator in its sales pitch, I would suggest that, before placing additional strain on the administration systems (either as a result of continued organic growth or from acquisition), adequate investment of time and resources must be made towards updating the company’s procedures and systems to ensure the growth is delivered efficiently and to the high standards currently being achieved.

Philip Atkinson is a corporate finance partner at PKF (UK) LLP, based in Guilford. He has extensive experience of transactions gained from more than a decade with a ‘big 4’ accountancy firm. Recently, he has focused on advising the SME market. Philip specialises in lead advisory work, mergers and acquisitions, private equity, fundraising and strategic advice. He has advised a wide range of both vendors and acquirers including Government and regulatory bodies, public and private companies, financial institutions, shareholder groups and individuals on disposals, acquisitions, private equity and financing across a range of industries. He is a Fellow of the Institute of Chartered Accountants in England and Wales.

Nick Britton

Nick Britton

Nick was the Managing Editor for when it was owned by Vitesse Media, before moving on to become Head of Investment Group and Editor at What Investment and thence to Head of Intermediary...

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