IBM is expanding the range of financial support available to its IT resellers, to give them greater flexibility and access to loans for acquisition funds. Catalyst Solutions Plc, a Frimley, UK-based IT services company which began life as an IBM partner for its AS-400 platform, has extended that relationship to take advantage of this war chest and share the costs of acquiring Datel Advanced Systems, another UK-based IT supplier.
The financial package is worth 8 million pounds, the majority of it cash. IBM has funded its distribution channels previously, but never to buy other companies. Finance has traditionally taken place in leasing equipment, building inventory and subsidizing accounts receivable.
Accepting funding from IBMÆs global finance division does occasionally create conflict of interest and CatalystÆs entry into the disaster recovery market meant that it was competing directly with its sponsor. After some tension at the sales level, the British firm agreed, said Alan Hixon, chief executive of Catalyst Solutions to compete at armÆs length.
Hixon referred to noises coming from IBM about the growing trend of consolidation within the industry driven by the need to offer a wide range of services and geographical coverage. When Jonathan Morris, director of IBMÆs commercial financing in the Europe, Middle East and Africa region, gently refuted this, Hixon returned to more comfortable areas, saying we get everything we want from IBM.
There was some doubt about whether IBM would make equity investments instead of loans; Hixon was uncertain as to whether he wanted IBMÆs direct investment in Catalyst. Morris admitted that itÆs something we are continually thinking about, and questioning should we do it. Acquisition financing, Morris said, was a de facto interest for IBM. In a sense we were forced, in that we saw this void; on the other side, itÆs an opportunity for us, he said. Morris was more definitive in ruling out similar programs, saying I doubt if weÆll see anyone else from the IT industry coming into this.
Catalyst Solutions is several years into an aggressive business plan and has made three acquisitions in the last eighteen months, purchasing fellow UK AS-400 shop Pacific Systems International Ltd in May last year, and UK NT consultancy services company Decision Data in August 1998. Established in 1994, the company now boasts revenues of 60 million pounds and a staff of five hundred. Hixon said that the company is preparing for an initial public offering next year at the earliest.
