Misys Plc of Stratford-upon-Avon has been a spectacularly successful company over the past few years but could it now be running out of steam? The company’s rise has been well-charted in the pages of Computergram and elsewhere – it published a pre-tax profit of UKP170,000 in 1985 and, based on its last interim results, looks set to report a pre-tax profit of UKP10m at the end of this financial year. However, the company’s share price which was up at 319 pence in December 1988 is now hovering around the 260p mark. While this is by no means a bad share price it would seem to indicate some City disenchantment with the group’s evolution which appears to be fuelled by acquisitions rather than by solid organic growth. Kevin Lomax, chairman of Misys, denies both that the group’s growth is unsustainable and that it is now driven by acquisitions. He argues that the companies Misys is buying are small in terms of the whole group operation and so, consequently, acquisitions are no longer acting as a kicker to the group’s earnings per share.
Rapid acquisitions
He added that even if the group bought a company 10% of its size, then the discount on the acquisition would not be a major source of growth. He stressed that acquisitions will never be the spur to growth for Misys’ earnings per share and pointed out that the group has not bought a company since the summer and is relaxed about the timing of acquisitions. That being so the rapid succession of acquisition announcements that Misys made in the first half of 1989 dramatically changed the group’s profile, turning it from a company whose core was in manufacturing its proprietary mini system, Dataller, to a company looking to open systems software for the bulk of its revenue. While the tag Unix software house may be an apt description for the majority of Misys’ business activities it is a label about which Lomax has some reservations. He points out that while the group’s Unix operations are a major part of its business (accounting for about 60% of its revenue) the IBM mid-range and DEC businesses are also good businesses and will continue to grow both organically and by acquisition. Even so Unix is a significant and robust growth area at the moment despite a difficult trading environment and it has the added advantage of helping to place Misys in a position to capitalise on IBM and DEC open systems initiatives. For example, the group is actively considering selling IBM’s RS/6000 box as part of its IBM mid-range business. Although Lomax recognises that IBM can play some nasty tricks on its resellers the moment a product become successful – Misys is after all an agent for the AS/400 – he believes that open systems change the rules when it comes to dedicated reselling. This is because Misysconsequently would not be tied to the RS/6000. However, Lomax swiftly added that supplier loyalty is key in this market and that he is no advocate of supplier hopping as this raises support costs. Some people have criticised Misys, saying that the company has been unfocussed in its pursuit of Unix software companies, and that it has bought, willy-nilly, into a variety of vertical markets. Lomax admits that it is taking time to integrate all Misys’ activities in Unix within its Open Systems Division, but says that the companies are now beginning to come together. For example, the Team company now sells Mentor’s Maxim product for the construction industry to its users.-
By Katy Ring
Lomax rebuts the idea that the division is spread over too many markets saying that it only deals directly with the construction, distribution and accounting, and large office automation sectors. Of course, indirectly, about 60 TIS value added resellers address 20 to 30 markets but they are vertical software houses in their own right. So far, the Misys Open Systems Division has dealt exclusively with Unix software, however, Lomax has never ruled out involvement with Pick houses. While he believes that Unix has won the race as the main open operating system, he also thinks it likely that Misys will at some point take o
n Pick value-added resellers as the MIPS Computer Systems machine, supported by TIS and Mentor, takes off in the Pick market. While the group’s Open Systems division and its Solutions division which sells into the IBM mid-range and DEC markets are both central to Lomax’s vision of the future, other divisions have looked increasingly peripheral to the Misys game plan. Most strikingly, Misys Dataller, which constitutes the group’s Financial Services division and which was the original Misys core business has been subject to gossip that it is up for sale (CI No 1,373). Naturally, no professional businessman is going to comment on rumours and speculation and Lomax is no exception to this rule. However, the Dataller business is thriving and since it was the business that got Misys off the ground, one suspects that it is a part of the Misys empire for which Lomax has more than merely an entrepreneurial affection. At present Dataller is used by 3,000 insurance brokers processing motor insurance and has had value added to it through its new networking capabilities. For Istel and Misys have set up a joint network offering a full EDI service and Viewdata running under Istel’s Inview system. The networking capabilities are directly integrated into the Misys hardware so that the user needs only a modem to connect to the network. Approximately 250 brokers are on the network but Lomax estimates that a further 250 will be added to it over the next few months. Misys is using the network to offer products with added value to their brokers. One such product is the client profiling service so far taken by 50 brokers to deliver a profiling service to clients. A further 100 brokers are going through the FIMBRA vetting process to see if they are eligible to carry this service.
Squash rumours
Other products will be announced at the Misys Insurance Market conference which takes place shortly and will be attended by 650 brokers. Of course a simple way to squash rumours that this business may be sold would be to integrate it into Open Systems by abandoning its proprietary operating system Tripos and moving to Unix. However, such a development is not on the cards, for Lomax argues that it would simply add cost to the system without increasing functionality. When it comes to questions of which companies Lomax might sell stronger contenders for a bidder’s eye come to mind than Dataller. For example, the Business Systems division is a very loose association of companies that share a common tenuous link in that they do not fit anywhere else in the Misys organisation. In this context Lomax says that there are a number of smaller companies such as Zygal Printers and the Independent Computer Company that don’t have particular organisational relationships. He added that they will stand alone and don’t really need a division. His point being that they could be wheeled in to help sales in any division. However, a point that Lomax didn’t make is that their isolation also indicates the ease with which they might leave Misys without affecting any of its other businesses. Keen Misys watchers will be interested to know that Lomax thinks that systems integration and software tools are high risk areas which the group is unlikely to move into as they both require an expert surefootedness in management that Lomax does not have. And as for those of you wondering whether Lomax will be taking the Misys phenomenon to Eastern Europe, in the short term the answer is a resounding no. Grinning, Lomax said they can’t even afford a decent telecoms system at the moment, so IT has severely limited opportunities. As for the future of the whole group, Lomax pointed out that it isn’t the computer sector’s purple patch at present, but that in the medium term the group’s earnings per share growth would continue at above average rates for the computer sector and that in the long term the group will increase its absolute value.
