Peninsula and Particle Physics

A strangely dressed chap turned up recently outside the Hadron collider claiming he'd come back from the future to stop us making the mistake of firing the thing up. I think they treated him as just "a very naughty boy". The Hadron collider is aiming to see if the Higgs Boson theoretical mechanism can be observed in reality - not that I really know much about quarks and high energy particle physics. The problem is - "they" don't really know what else it might reveal either. My personal favourite hunch is that when it does work, a large neon sign will automatically materialise in the skies over Switzerland in letters one mile high saying "LEVEL 2" - but who knows...

Recent results from Peninsula Business Services, Northgate's First Business Support, Citation, Ellis Whittam and Drury PSM suggest something is up. Or to put it another way - not up. There will be a lot of shadenfreude among Peninsula's many detractors at sales dropping in their latest accounts - all well and good - but at group level they grew slightly and achieved something really quite special in the tax fee business. Northgate's results for First Business Support are unusually flat, as are Citation's, and even Drury is not it's usual ebullient self.

So what is going on? Well sadly, its quite simple. Maths. Not everyone's favourite at school, and downright baffling when you get to the particle physics level of it. But essentially the regulatory consulting market is finally reaching "LEVEL2". Peninsula's sales drop in the employment and safety business has more to do with their size, than the market. The maths is simple. Increasing the size of a sales force continually eventually reaches a point of diminishing returns. In Level One you can play the game by simply adding more and more sales staff - "piling it high". Even with an addressable market of 800k businesses, however, 100 teleappointers ringing 100 firms a day will cycle through that 3 times a year or more. Small firm clients annoyingly also go bust and cancel, so the gap to fill each year before achieving growth simply gets bigger.

So IF - and its a big "if" - clients renew at, say an annualised 86%, and new sales staff generate, say £75k each pa, it takes 122 front line sales staff at full tilt for a £65m business just to break even. A 1% increase in cancellations means a £5-600k drop in turnover even with the team at full tilt. It's maths - not five year contracts, recessions or quality of service that is the main driver here. The market is now over half a billion in sales pa, it reached Level 2 in the late noughties and the rules are changing.

Peninsula have dabbled with the new rules, and growth in Ireland and Taxwise have kept them growing at the top group level. Ellis Whittam are growing and we expect other mid-market differentiated players to continue their growth too. But what worked in Level 1 simply is not enough in Level 2. Throwing sales staff at growth will only get you so far. Taking cancellations on the chin will no longer be an option. Price dumping hurts no-one more than the main dumper. Throwing ever more qualified management bodies at problems is also usually a fast track to complexity instead of growth - a bad thing. Growth is important - it is one of the key determinants of enterprise value, so only a very brave few will give up on it. To sustain it in the Level 2 environment, however requires new thinking.

New significant service lines are required - and if there is any criticism of this market that really hurts, it is that an insurance mentality doesn't go far enough. More bells and whistles for the sales team is fine as far as it goes - what's needed are complementary service lines with real grunt.

For a profile of Peninsula based on the latest accounts for the group, see www.rbponline.co.uk

Was that a pie eating contest where the 1st prize was more pie?

We are often asked what the shape of the UK legal technology market really is now. Surely CSGroup/IRIS' series of deals, Tikit buying TfB, Lexis snapping up Visualfiles and Axxia, not to mention some smaller teams merging as well means it is over and out? Well, actually no. None of the big brands have a market share head to head here of over 20% and most are firmly still in single figures, despite their deep pockets and best efforts so far.

The RBP Market Fundamentals Report for UK Legal Technology Suppliers 2011 Q1 - the definitive guide to practice, case and matter management software solutions suppliers - spells it out in detail. Over 80 firms are tracked, and while the core attractiveness of the market explains why big firms would try to muscle in - no one really has dominance yet.

In fact, while some of the consolidations probably still have a recurring case of indigestion, the market is being changed by a range of reinvigorated independents.

To see the full picture, the extensive analysis of the market from 1995 to 2015 is now available in an accessible powerpoint version at:
http://www.rbponline.co.uk/rbpsectors.asp?sector=LTS

Rule Britannia

It is a travesty frankly that the old National Britannia brand in safety compliance services has become so knocked about that it had to undergo the indignity of an unplanned sale. The buyers of the core contracts are BECAP, the private equity investment vehicle of Better Capital Limited. And as phoenix players go - Mr Moulton is one of the best, so it is perhaps fitting that they are back in the hands of a world class player at last; although "phoenix" would be overstating this - Moulton has a gem in his hands. NatBrit was rebranded Santia last December, such was the Windscale effect of the Connaught collapse on Connaught Compliance.

NatBrit has had to endure relegation and insult after a period of inept group management - thankfully mostly endured under the Connaught Compliance banner. Anthony Record, NatBrit's founder was one of the best entrepreneurs I've ever had the pleasure of working with. He had the vision for a safety compliance specialist team with an IT core and interlocking specialisms decades ahead of its time. What everyone takes forgranted in the safety industry now, Anthony had nailed on years ago; and he kept doing it - SafeContractor was another one of his babies. Yes he did have some good lieutenants, but most were just that compared to Ant's Admiralty level thinking. He was lucky enough to retire before the Connaught debacle and did see a good return on his efforts - but he would be distraught to see his baby so shabbily treated. Perhaps now the safety business will also see that segmentation by blue collar and white collar safety is nonsense - there is just compliance done well.

If Moulton plays true to form NatBrit will be back on its feet within months and back in the fray punching above its weight again within a year or so. This should be a £60m+ sales business with 25% profitability routinely achieved and consistent double digit growth. In a people intensive business such as this, a full turnaround will take a little while, however. Both former senior management and close competitors will have been trawling around the back rooms and kitchens in depressing detail over the recent months. It doesn't help. But as slides go, a period in the doldrums of around 2-3 years could be short, and in retrospect look like a mere blip eventually. Others in neighbouring sectors have been stubbornly flogging dead horses for two or three times that with inept strategies. The transition from record growth to a more digestable platform was never going to be easy - no-one would have chosen this route, but it may be the best thing in the end. The core in NatBrit is solid and we hope the flag will fly again.

I may be only one with an allergy to obviously white board derived brands - but why they didn't do the RBS/NatWest trick and just resurrect the largely untainted old brand is beyond me? "Santia" feels more like a women's health product advertised by youngsters in white jeans - or maybe a hispanic reindeer-botherer in December - a cure for sneezing perhaps? Any other suggestions on a postcard please...