Dynamic Destiny
For someone who has deliberately targeted business from big firms and government bodies, Tony McGuire seems to be keeping a cool head, despite the cutbacks being witnessed across the economy.
The managing director of IT solutions firm System Dynamics, McGuire has spent more than a decade creating an Irish company that can compete with the big boys internationally. Through a mixture of organic growth and acquisitions, he has built a profitable company, with 180 staff and a list of big-name clients.
Despite the economic slowdown, revenues at System Dynamics increased last year - from €21 million in 2007 - and should hold steady this year, according to McGuire. The firm’s most recent accounts show a 35 per cent increase in revenues between 2006 and 2007, when after-tax profits rose to more than €500,000.
While the 2007 accounts said the firm planned to ‘‘continue to grow our business in double digits’’, McGuire acknowledged that System Dynamics was not immune from the tough times facing businesses.
He said that, having built up a company which relied heavily on public sector contracts, its challenge was to maintain momentum amid wholesale cutbacks in spending. However, he said that deals had not simply evaporated. Instead, public sector clients were coming back to System Dynamics and other suppliers, asking if more efficiencies could be found and if prices could be negotiated - something he said that his firm was always willing to do.
‘‘We saw this [slowdown] happening over a year ago,” said McGuire. ‘‘In the financial services sector, which is a big piece of our business, it started around the end of 2007.We saw cutbacks then and business decline rapidly, and we had to readjust.”
McGuire’s plan is not to retrench, but to take his business beyond Ireland and continue chipping away at a market that was once the preserve of big-name multinationals. He has turned his attention to Britain, and is actively looking at moving into Scotland and the north of England.
‘‘Winning business in other markets will bring a lot more value than the same amount of business won here,” said McGuire, who owns about 50 per cent of System Dynamics.
‘‘In a new geography, you have to have more offerings and a different understanding of how the business works, so it adds another dimension to your company and increases its value.” McGuire believes that the regions of Britain may provide better opportunities for System Dynamics than London or other big centres.
The move should also broaden the pool of potential acquisitions for System Dynamics, which has completed several deals in Ireland.
McGuire is no stranger to challenging times, having cut his teeth in the technology sector in the 1980s. System Dynamics itself has an even longer heritage, starting life in 1968 when a group of former IBM staff, led by Tom McGovern, left the US firm.
‘‘They were set up to deliver consulting into companies that were buying IBM computers,” said McGuire. ‘‘There were very few people buying computers back then. They first went into places like the Sugar Company, Aer Lingus and Irish Life.”
The company thrived and business reached a peak in the mid1980s. However, McGovern died suddenly in the early 1990s and System Dynamics began to struggle. McGovern’s estate opted to sell the firm to the Arrival Group in Britain.
‘‘There was a shift in the industry, as it was moving away from mainframes to mini-computers, and into desktops,” said McGuire, who was working as managing director of Vector Software, part of the Insight Group, at the time. ‘‘There was also a great deal of competition coming into the country around then.”
In 1988, Insight was sold to a company called Hoskins which, in turn, was bought out by international consulting firm Capgemini. That started a new phase in McGuire’s career.
‘‘Capgemini did me an amazing favour - they seconded me to their M&A [mergers and acquisitions] team,” he said. ‘‘That taught me how they went about building their business, because they had all of this organic growth, but they also had growth by acquisition. ‘‘I learned about how they targeted companies, how they researched them, what they looked for and how they valued them. It opened my eyes.”
After leaving Capgemini in 1992, he set up his own consulting business. The economy was not in good shape, and business was hard to come by. ‘‘It was awful,” he said, although he was not the only one facing difficulties.
‘‘I came across the opportunity to buy a small company, which was a part of the Dascom Group. I had done some consulting work for them, and they had a small division of six or seven people and they were having some difficulties. That gave me a base to work from.”
In 1996,McGuire’s path crossed with that of System Dynamics. He had known the chairman of the Arrival Group from his days at Insight, and the pair met in Dublin.
‘‘He was having a real problem with the company, and he just couldn’t make it work,” McGuire said. ‘‘I said I would take a look, and you could tell immediately what the problem was - they just didn’t understand that Tom McGovern sold by knowing everyone. He would go for a cup of coffee with someone, and come back with a contract. The Arrival Group were sending a guy over from Manchester to run the business and he was there one day a week, and it just didn’t work.”
McGuire made an offer for the company that ‘‘could have easily been refused’’, but wasn’t. System Dynamics gave him the platform to start building the type of company he had begun to envision while working at Capgemini.
Explaining how he saw the sector, McGuire drew a graph on a piece of paper. One axis represented risk; the other represented value. Projects with high risk or value generally defaulted to multinationals such as IBM, Accenture, HP, and Fujitsu.
Local firms tended to be clustered in the low-risk and low-value sector. In the middle was a huge amount of business that was moderate in risk but high in value.
‘‘Guess what?” said McGuire. ‘‘It’s the big guys who get it. Why do they get it? Our clients have said in the past [that the reason is] because there isn’t an Irish company that has the credibility or capability to do that work. There are more than 800 small Irish companies. Half of them masquerade as product companies, but they’re really services companies.”
Within four years of taking over System Dynamics, the company had tripled in size. McGuire decided that it was time to start making acquisitions. However, he encountered a roadblock straight away. Much to his surprise, nobody wanted to sell.
‘‘Everybody wanted to talk tome, but nobody wanted to do the deal. I then discovered an issue that is prevalent in the Irish industry - there are tons of small companies who are proprietor-led, and they don’t want to give up control,” he said.
After a year of unsuccessful attempts, McGuire decided to adopt a different approach. He turned his attention to companies that were divisions of larger firms, or were in some form of corporate ownership.
Immediately, he began to find prospects. The first was EPS, whose owner was keen to expand in another area and needed to raise cash. A string of deals followed, culminating in the purchase of Software Resources in 2006, which enabled System Dynamics to shift its business model.
Before that deal, it had been selling to IT departments, but the acquisition of Software Resources allowed it to start pitching to business divisions of clients, where major strategic decisions were taken. The firm has also moved beyond its traditional financial services business, and has grown its client base in the public sector.
However, McGuire said that this business took a lot of time to build. ‘‘We spent 18 months doing this before we won business. We bid so many times and lost,” he said. ‘‘Every time we lost, I went to meet them and asked why we lost. When we finally won a piece of business, we didn’t know why we did, so we had to go them and ask why we won. Many public sector organisations have said to me that they are not paid to risk public money, so they are going to go with the big companies.”
Public procurement is a hobbyhorse of McGuire’s, who chairs the Irish Software Association’s working group on public procurement. A well-known figure in the Irish technology sector, he is used to sharing his views with other Irish firms.
For the future, his advice is to keep one’s head as things slow down. ‘‘First, it was financial services, now it is the public sector, and we’ll see it in the general corporate sector next. But it will wash through - everyone will know where they are before long,” he said.
This article was written by Dick O'Brien.
It appeared in the 8 February 2009 edition of The Sunday Business Post.
