Robert Strzelecki, CEO Tenderhut
The company focuses on supporting entrepreneurs in the growth of their sales network, on building sales strategy for products and on supporting them in the tendering process to obtain contracts both on the public and commercial markets. Our mission is to create a new quality in the provision of specialized consulting, legal services and international trade in the IT area.
Piotr Kucharczyk CFA, M&A Director at JP Weber
We meet in pandemic conditions. One of the interesting things we are now hearing about is that the pandemic is an opportunity for the IT market. Do you guys perceive it that way too?
Robert Strzelecki: The pandemic itself does not prevent IT specialists from working. Considering that we have been working remotely for at least a decade because remote work has been present in the IT market for a long time. It is problematic for IT companies to issue post factum invoices after the end of a month, so now we have to look more actively at the financial condition of our customers. On the other hand, there are a lot of new sources of income for IT companies, because other companies are focused on digitalization. This is counterbalanced by yet another phenomenon – some companies are withholding their investments and sometimes these sources, which until now were obvious for the IT industry, are somehow expiring.
Piotr, do you see the evolution of the IT industry, not just the recession?
Piotr Kucharczyk: Definitely yes. Of course, there are some not able to cope, and the crisis has made their problems even worse. However, most companies have benefited from this slowdown because all other industries are becoming digital, they need equipment, to modernize their infrastructure, and launch online stores. So the demand for IT services has increased. From my conversations with companies that were considering going out of business, when they saw the prospects for IT development, their plans changed. There were plans for new services and reaching new markets, so the pandemic seems to have helped the industry.
Do you see any differences between the IT market in Poland and global trends? Very often in this context there is an example of gaming, although the IT industry is much wider. What is its specificity in Poland?
RS: The Tenderhut Group does not yet specialize in games and I think we will leave this area to those who specialize in it. As far as the other countries are concerned, we see the different approaches of each government and the different reaction of each economy. It is therefore difficult to generalize. We can see that the Swedish, Polish, Danish and British models have their advantages and disadvantages, and no one has yet found the perfect solution: “Yes, this is the way to fight it”. In any case, since March we have already gotten used to the fact that if something is true at 9 a.m., an hour later it may turn out to be untrue after the speech of a member of a given government, the European Union or the USA. At the moment, all entrepreneurs, and certainly those who take the business seriously, are following the reports from the market where they are present on a daily basis. And in order to avoid trouble, they look closely at the issues related to the rating and liquidity assessment of their clients.
Do you see the characteristic features of the Polish market and the Polish IT industry?
PK: You can see that Poland, compared to the countries of the region or even Europe, is famed for its highly qualified staff, these are specialists who have no language barriers, their work culture corresponds to Western countries or the USA, and at the same time labour costs are favourable in comparison with other countries, which makes Polish companies competitive in the international arena. I also know those that are only focused on foreign cooperation. Their competence and operations center is in Poland, while sales take place in foreign markets.
We talk about development. In this context investments are vital. One way is mergers and acquisitions. When should an entrepreneur with an idea start thinking about it?
RS: It is a difficult question because it probably depends on the attitude. Our attitude when we founded the company in 2015 was the emphasis on very fast growth, which can be seen even in Covid times. And we hope for more awards, we are waiting for the results of the rankings for our company Solution for Labs, a company providing laboratory systems and implementation of these systems in very large global companies. In this case, we are talking about increases of 2400 per cent. Last year we had increases of up to 3,000 per cent in relation to the past three years at SoftwareHut, which deals with outsourcing. For us, all these acquisitions began due to the fact that with very rapid growth, we weren’t able to train good managers. The term takeover in our case is a little bit exaggerated because it was more of a merger. We were interested in the experience of their management and the focus on the client. We were also interested in understanding that the money came from customers and not from the accounts of the parent company. This allowed us to drive our growth. I am not the only person in the company who can manage, there are more than ten CEOs, each of us is responsible for different business lines – even with several companies. We have companies in Poland – they are product companies as well as companies focused on specific outsourcing sectors. We also have companies in Denmark, USA, Sweden (recently Nord Tech House merged with us) and China. We established them in order to be able to serve our clients behind the great Chinese firewall, and that was quite a challenge. Of course, you can acquire large companies with problems from the market and force a poor valuation, but you can also – like us – exchange shares, cash to previous owners and build something bigger, have a vision of a bigger company.
PK: Certainly, it is very important to plan such a process in advance. We must assume that the acquisition itself will take about 12 months. However, what the companies do and what I think is right is to set a strategy for the next few years and, if it is justified, include acquisition activities in this strategy. This has recently been announced by Sescom and Ailleron; this is one of their directions of development. Among the many activities that the company has planned, acquisition stands out. Then you can consciously approach the process, planning when you would like to take over the entity, what qualities it would have, that is to plan and carry out the whole process. This should determine its success.
From the perspective of an entrepreneur or a start-up that is created – when do they turn to you and what are your requirements to take over such a company? You – investors and advisors?
PK: We deal with servicing larger companies rather than start-ups. As far as the criteria are concerned – we try to get to know the company very well through dialogue or during workshops and assess whether this direction has a chance for success. If the company is doing well and is recording growth and needs capital to support growth, this process has a chance to succeed. If the company is doing badly, you should expect a lower valuation and worse offers.
RS: In our case, we are rather talking about software and outsourcing companies operating in the field of cybersecurity and graphic services. Their owners came to us when they found out they had achieved something, for example, they built a team of 100 people but did not know how or where to go next. Or they said that going further is another investment that will pay for itself after years and will involve a certain amount of effort to professionalize the accounting or sales process, which must be planned and not based on getting a random client. Of course, we also took companies who were in difficulties. What matters most to us is to convince our potential partners that synergy pays off and it’s worth it to be a big player in the market – Polish and international, to which we aspire.
Can you disenchant the concept of acquisition? It’s a word that evokes fear. An entrepreneur is afraid that he will lose control over “his child”.
RS: Yes, he loses control over his child, but he gains some control over an adult and becomes responsible for the further career of that adult. This also is very rewarding. For example in a company of thirty people, the owners of the company are usually responsible for everything. If they join Tenderhuta, they can only focus on the part that is important to them and where they would like to improve. So for example if invoicing, debt collection, marketing campaigns or PR is something they do not like to do, they get support from the group.
PK: As an advisor leading workshops for owners of companies who want to sell them, I can see that emotions are an important aspect of the whole process. Especially when someone sells a company created by him or her. The human factor is also important in the sphere of organization, that is, communication later on. It is about presenting the benefits that will result from the acquisition. While searching for a buyer it is important to match the organizational cultures and the future of these businesses. Therefore, it’s not about the highest price, but someone who can lead the company further, give it more possibilities. A takeover, therefore, has a second bottom line: someone who takes over must also see in the takeover the sense and benefits associated with the company being acquired. Of course, a takeover may raise concerns, because it is a significant change in ownership and organization, but if conducted properly – to put it lightly, the advisor also acts as a psychologist in the process – the owner will see the advantages of the transaction. In the IT industry, which results from the work culture and mentality of the people who make up the industry, companies are eager to merge, exchange shares etc. This creates larger groups, both parties are satisfied. In other industries, such situations usually do not occur. Usually, everyone strives to be the best and to be successful in the market. Let us look at transport companies as an example. It is not common among them that two companies merge and have more drivers and cars and set off together for further market expansion. There are no such barriers in the IT industry, there is more flexibility and therefore it’s easier to achieve success.
RS: Why are we aiming for more? We had meetings with a top Danish bank and were recommended by the top IT manager. We prepared a presentation, showed what we can do, but forgot to mention how many people we have in the team. We were praised for our approach and finally asked: “How many people do you have”? We say 80 because that’s how many we had at the time. Our interlocutor looks at the ceiling for a while and tells us to come back in a couple of years when we build a team of 300 people. “Because our smallest projects involve 80 people, so if I commissioned you to do something, you would have to refuse all other clients.” In my opinion, there is no difference between a company that employs a thousand and 10 thousand, because such organizations will take care of every project and use only their own resources. Our companies cover a wide range of issues, our strength is technology, and the client only tells us what he wants. In this case, we need a certain number of people who are on the bench – that’s the term for IT specialists waiting for an order – as well as those who will be able to complete the project when the project is reorganized.
Does the origin of the capital matter here? At the beginning we were talking about the cultural role, so what should be the focus?
PK: My perspective is that JP Weber is a member of the international organization M&A Worldwide, which associates advisors from all over the world; I have the pleasure of belonging to the IT sector group. We talk a lot about transactions, we cooperate. In fact, capital origin is not the most important thing, matching is. We will not talk about where the investor comes from and what nationality his capital is. We focus more attention on the profile of the investor and the strengths of the company that needs it. However, when we look for acquisition targets, we pay attention to the geographical aspect. The acquirer may depend on certain markets. I also met with entrepreneurs from Poland and Lithuania, who talked about the barriers regarding entering the German market. It is about cultural differences and a different approach to companies from Poland. A good solution here would be to take over a player in the local market, i.e. to have operational and language skills or to establish a company there.
RS: Up until five years ago, acquisitions were mainly made by companies from outside Poland. It was about gaining a bridgehead or a cheap outsourcing center. A fundamental change has been visible for several years now. On the one hand, more and more capital is accumulating in the IT industry, so there are more and more market players who say: “Tenderhut, join me!”, there are those who say: “Let’s make a co-operative”, those who take over minority shareholdings, also companies like Asseco that attract various production companies in Poland and Central Europe. I would assume that there will be more and more Polish capital focused on building something interesting. We can also consider the Ukrainian market, where the fragmented market has been consolidated, we can now see several powerful players, for example, Epam. This is also visible in China, where the giants have several buildings; this scale is still unimaginable for us. I think that the Polish market will be more and more difficult for foreigners, so we will try to build on Polish brands. We – Tenderhut – do not think about acquisitions in Poland, we think about mergers, but we are working on acquisitions of foreign companies, for example, we took over a company in Sweden, we look at England and France as places where we would like to strengthen our position by taking over companies there.
There is also an important question about the investment model. How does cooperation with a strategic investor differ from cooperation with a financial investor?
PK: They have different goals. A strategic investor, i.e. an industry investor, will look for companies to take over as part of their development and adopted growth strategy. They will seek acquisitions by re-investing cash surpluses. This is the model chosen by the Tenderhut group in Sweden. A financial investor will treat an acquisition solely as an investment. They will look for a company in which they will entrust capital for a certain period of time and which has an idea of how to use this capital. In this case, the investor will strive to achieve a certain rate of return. It is important for the entrepreneur to think about what they really need, prepare for talks and interest the other party. Thanks to this, they will achieve the intended goal more effectively.
RS: At one time I was also the owner of a company that was taken over. If we are talking about a financial investor, we are still responsible for that company. We get a cash injection and we feel like a small company on steroids. If we spend this money correctly, it will be a great success, and also a nice financial or participatory reward. On the other hand, a strategic investor who thinks about building a larger enterprise or supplementing the competence will start to say “we” instead of “I”. This will give us management support and an exchange of experiences. Our CEOs joined companies at very different times in their business development, some at the boom, i.e. the moment of best valuation, others in not such favourable circumstances. And now, during a pandemic, with a dynamically changing market, we can support ourselves, for example, in our approach to customer recovery, because as a result of delayed payment the company had stability problems, or how to manage teams finishing large projects – a situation that we faced in March and April. We became involved in the travel industry, which basically ground to a halt. Teams supporting airlines and companies with fixed locations in their airline supply chains lost liquidity overnight and stopped making any transactions. This was a great shock to them and something we were not able to prepare for earlier. But thanks to the previous experience of the managers in our companies, we could draw on their knowledge. We also have people who know how to enter a new market successfully. This is our DNA – very diverse. And it’s what makes us strong. I want to say one more thing, I divide my shares all the time because when we merge with another entity, we exchange shares for shares or stocks for stocks. This makes, firstly, the cake bigger and, secondly, we all think about the development of the group. This allows us to achieve growth rates of 2700 per cent. We hope that this is not the end of such increases in our companies. We are now counting on startups which are becoming more mature. Of course, Covid concerns us, it helps us sometimes, but we have to spend much more time thinking about the future and preparing for different scenarios.
After more than six months of Covid, do you see any direction? Something is starting to emerge, are there any concrete conclusions? Is it too early for that?
RS: After the outbreak of the epidemic, the e-commerce industry experienced the biggest boom. Those who didn’t have an online store immediately focused on it as their only source of income. Currently, I think the e-commerce boom is shifting to the management of data obtained from online sales. Previously, we did not know who bought the cups or clothes because we had anonymous customers in a stationery store. Now we have data on the age, gender, buyer preferences, for example in user searches. In my opinion, the part of IT related to big data, artificial intelligence, machine learning is developing rapidly. Data-driven business is developing really fast. On the other hand, another breakthrough, like 5G, can become an augmented reality and all that, as well as virtual and mixed, applied in our everyday life, in production halls, laboratories, hospitals. We now have a startup that deals with the latter issue and tries to support hospitals during the next wave of Covid. Add to that robotics(we are less present in this field), automation and digitalization of processes. Let’s remember that in many companies paper was the main carrier of information at least in some areas. There is one more change: If previously all employees of the company in Paris, London or Tokyo came to the office and people in Poland were to start working for them, then the foreign companies sometimes had a mental block: “We won’t see each other, we won’t be able to meet”. The time difference between Poland and Japan was also of some importance, even 9 hours. These barriers are now less and less important. Most teams work remotely and managers understand that such work doesn’t have to be less effective. Outsourcing has benefited from this. Moreover, Covid has forced companies to make their strategies and commitments more flexible. It is difficult for a full-time employee to say that he won’t be working from tomorrow. It is much easier to convey such a message to an outsourcing company. Flexibility is the second reason why recruitment for companies is less important than outsourcing. Thanks to that we can see an increase in the number of inquiries for IT specialists.
PK: In my opinion, we could see the fastest digitization of companies. Before the outbreak of the pandemic, it was actually only in the IT industry that working from home was acceptable. I know IT specialists who work for a company in the USA and live in Warsaw. After the outbreak of the pandemic, all industries had to adapt to new realities. One of our customers, Classen, hasn’t changed anything in their production, but his offices are empty. Six months ago it was unthinkable that the administration of the firm would work from home, but it works very well. The first visible change was the boom on e-commerce solutions, but also in IT tools to work from home – Microsoft Teams, Zoom. These allowed them to move their office space into a virtual sphere. In my opinion, thanks to the pandemic experience, we achieved increased flexibility and adjusted working to the current needs of the organization and employees. Today there is no problem meeting someone in France, Italy, or the other end of Poland in one day. We simply switch. And this, in my opinion, also contributes to the increase of work efficiency. Six months ago it would have been a good idea to go to a meeting. A face-to-face meeting is of course very valuable, and from the perspective of transactional processes, they are inevitable. It is impossible to carry out the whole transaction process at home in front of the computer, looking at the camera. Interactions and meetings are invaluable and must happen, but when it is not necessary, there is no problem working remotely and responding to current needs.
So the keywords are flexibility and customization, especially as there is no indication that the pandemic is going to end quickly. That is why it is worth thinking about the further development of the company and looking for advisors and investors. Thank you for the interview.