Kewill Systems Plc, one of the four or five from the host of UK computer companies that have come to market over the past five years that stand out as potential majors through their determination to grow and diversify rapidly by acquisition, has gone over the Pole for its latest target, agreeing to buy manufacturing […]
Kewill Systems Plc, one of the four or five from the host of UK computer companies that have come to market over the past five years that stand out as potential majors through their determination to grow and diversify rapidly by acquisition, has gone over the Pole for its latest target, agreeing to buy manufacturing management software specialist MicroMRP Inc of San Francisco for $5.5m. Of the purchase price, $4.5m will be met via a vendor placing of 950,000 new Kewill shares at 295 pence a time, and the balance, up to a maximum of $1m, will be paid in cash. The full price will be paid only if MicroMRP is able to show adjusted pretax profits of over $800,000 for the year to December 31 1989; the agreement also requires that the target show net assets of not less than $1m at December 31, of which at least $150,000 must be in cash. The size of the acquisition means that shareholder approval will be required and a meeting has been called for January 8. MicroMRP, which claims that it has now sold 2,400 personal computerbased manufacturing systems, and Kewill sees the company’s line as giv-ing it a product for the US market similar to its own Micross package, and Kewill believes that transplanting its own consultancy and training techniques, and crossfertilisation of marketing techniques, management methods and product development will be beneficial on both sides of the Atlantic. The existing management team at MicroMRP, which turned the company around in 1987 after losses of $1.7m in 1985 and $1.2m in 1987 by instituting new telephone sales procedures, is staying on. Their efforts were rewarded with net losses down to $148,000 on sales of $3.2m in 1987, and made profits of $624,000 in the year to December 31 1988 on turnover up 40% at $4.5m. Kewill has typically followed the practice of writing off goodwill the excess of purchase price over net assets against reserves immedi-ately, but doesn’t like the damage that appears to do to its balance sheet in the case of software companies, whose tangible assets are usually worth a small fraction of their real value. It therefore intends in future to adopt the newly fashionable practice of capitalising brand name valuations, putting values on trade marks, names, copyrights, intellectual property rights and licensing agreements of future acquisiti ons, starting with MicroMRP, and writing off as good will only the difference between the acquisition price and the aggregate of these values and the net tangible assets. Makes sense, and may well be copied by a host of other acquisitive UK software and syst ems companies, but it could prove controversial. In other areas of its business, Kewill, which reported pretax profits for the six months to September 30 up 55% at UKP1.1m, reports that there was strong growth in the manufacturing division, and that contributions are expected from KewillXital Systems Ltd, Omicron Management Software Ltd and Helix Management Consul tants Ltd in the current period. The March acquisit ion of Omicron has been the most troublesome, requir ing a reorganisation that saw the London office closed, and the Crawford Computers subsidiary shut down. The company also has its eye on other acquisi tions, notably an imminent one on the continent.