The UKP6m that Kalamazoo Computer Group Plc will pay for Cardiff based WIS Computer Systems seemed pretty high for a company with a turnover of UKP978,590 and pre-tax profits of UKP126,664 (CI No 2,544). The acquisition becomes even curioser when the deal is broken down. An initial consideraiton of UKP1.785m will be paid, UKP1.515m in cash, the rest in shares. Up to UKP4.2m will then be paid in an earn-out over the next three years either in cash or shares or a mix. It is uncommon for a deal to be weighted so heavily towards the earn-out and it points to the unfulfilled potential that Kalamazoo believes WIS to have. The earn-out demands that WIS trebles its turnover in the next three years. This Kalamazoo regards as demanding but by no means unattainable. The up-front payment is to tie in the technical visionaries of WIS and the earn-out to encourage them to market the product better than previously. Indeed before the acquisition, WIS had little or no marketing policy, relying on one or two trade shows and on customers coming to them, and one of Kalamazoo’s first plans is to put a sales team in place. It reckons creation of a comparable product would take between 30 and 40 man years and 2m lines of code and has bought a bargain. Kalamazoo ranks WIS-Answer up with Mfg/Pro from Largotim and SAP, and believes that in the process manufacturing industry it has no equal. Whereas the accounting and financials market can boast 300 software players and huge competition, process manufacturing has only around a dozen contenders, only half of them of any size. WIS can already to point to Cow & Gate and British Gas Plc as reference customers and is after companies with turnovers between UKP50m and UKP500m. WIS will be able to tap into Kalamazoo’s large installed customer base and will have the funding necessary to develop the product further.
