The prospective acquisition of companies by Synergon could increase the revenue of the company with billions of Forints, and the EBITDA with millions. The purchase is partially financed by the company’s own shares. Moreover, the CEO of Synergon is open for the possibility of appearing on the buying side if PannErgy would like to sell some of its shares, for instance. The construction of the new data centre might start in mid-2013 – as we were informed during our interview with Zoltán Jutasi.
The net income of the company exceeded HUF 220 million in the first quarter. Could this performance be repeated in the subsequent quarters?
I am not allowed to provide information regarding our performance in Q3, but by the time this interview is published, the results will be already available to the public. I can only tell that the numbers won’t cause any surprise. In the upcoming quarters we will perform better, mainly because some of our acquisitions will be successfully finished by that time. Our plan is to expand our portfolio with companies capable of achieving good EBITDA. I personally don’t think that in today’s IT sector one can achieve serious growth in the organic way alone; the approach to be followed is rather the active involvement in the market consolidation. If our current activities were brought the results of the first quarter only, we would have been disappointed because we know we are capable of achieving more.
How large companies can be included in the company’s portfolio?
The operation of Synergon is focusing on three activities: outsourcing, infocommunications, and services related to data parks, integration and security. When we think about acquisitions, we firstly consider businesses with these types of activities. The targeted companies are considered as medium-sized businesses on the Hungarian market, and they will be able to generate billions of HUF worth sales and a several hundred million HUF EBITDA, so they will vastly outperform Infinity’s contribution to the Synergon Group.
At what price a middle-sized IT company can be bought in Hungary?
Due to the financial crisis IT companies can be acquired with EBIDTA multiple of 3-4x. I hope that the appearance of the acquired companies’ numbers in the financial statements of Synergon will have a favourable effect on the share price. As a result of the crisis smaller companies are lacking the ability to acquire external financial resources for further growth, so it is a logical move from their perspective to look for a strategic partner, which they can find in the new Synergon holding structure.
Wouldn’t it be more profitable investing in own developments instead of acquisitions?
It is a strategic question. Product development carries several risks, and with the evaluation of them we can decide whether to develop a new product on our own or to acquire an almost “ready-to-use” product on the market. In case of an acquisition majority of these risks are already discovered and known. Through acquisition we instantly get access to the knowledge and the workforce, which would take years to achieve within the Group. We cannot be compared to start-up enterprises that operate with very low expenses, and develop innovative solutions driven by their own commitment, while taking huge risks. We are not like Apple or Microsoft; we don’t possess “inexhaustible” financial resources and cannot finance highly risky and expensive fundamental research. As far as I can tell, it is more profitable to growth via acquisitions than organically.
Just a while ago a press release was published about plans of constructing a new data centre; it seems that Synergon wants to involve additional partner(s) into the development. Is this kind of project such a huge investment?
Indeed, we would like to carry out this project with the involvement of external financial resources and partners. The planned centre – with 2,000 m2useful area at the beginning – might require 10-16 million EUR investment; we are currently negotiating with commercial banks and other financing partners, as well as with potential lessees regarding this matter. The construction can start by the middle of the next year. As far as I know, sooner or later it will be compulsory for the financial institutions to have their secondary site within a predefined distance from the primary headquarter. Our hope is that it will attract lessees to the data centre.
I wouldn’t be surprised if the project would be realized on one of the sites of PannErgy…
This is not necessarily the case. We were negotiating with PannErgy about the energy supply, but this does not imply that the facility will be built next to an (energy) station of PannErgy. In the medium-term it’s important to have the opportunity of building up supply of alternative energy, but for now the supply will be provided from non-renewable resources. At the same time, we look forward to solve the cooling of data centre in an efficient and environmentally friendly way with the help of PannErgy.
Why have you decided to sign to Synergon now and why did you purchase shares from Cashline? Didn’t PannErgy want to sell?
The answer is quite prosaic: when we made a deal with the two main owners of the company to start working together, we also agreed that I will acquire shares in it. The agreement contained that it won’t happen immediately and at the same time. There exists the price, at which financial investors are ready to get rid of their shares – in the case of Chashline this was the moment. I cannot tell you when it will happen at PannErgy, you have to ask them about that. I am open for being on the buying side again when this happens.
Synergon is among the best performing shares this year. What’s the reason behind that?
The dynamics of the increasing tendency surprised me as well. Not because I didn’t believe that it can be achieved, but because I didn’t expect the market to react so quickly to the positive results. I personally thought the market was much more illiquid (than that). Thanks to the stock’s appearance in the BUX index, we have new shareholders in the company.
Currently the tender on the electronic toll system is probably the hottest topic among investors. The negotiation phase have already been concluded, the next step is the submission of exact bid offers. The execution technicalities are known for all players except for Synergon. Would you share it with us?
Our offer fully conforms to the requirements of the tender, but the technical background is still a business secret as it can affect our pricing to a large extent.
Is it believable that the competition couldn’t find out the information in such a small market?
They suspect it but the exact information didn’t leak about it. If they knew, they would already have started working against it.
Many county that it is impossible to build up the system all across the country in this short amount of time. Do you think it can start working in next January?
I think so. Our offer’s main point is that the implementation plan contains elements which can speed up our work considerably. However, due to the short time frame it is essential that the authorities execute the issuance of permissions within a reasonable time.
Synergon is present in the project as the general contractor of the Chinese CITCC. What is your share of contribution?
Our company is a general contractor with more than 15% share. Our first-round offer even suggests 10 billion HUF revenue. In case of our successful participation on the tender the numbers regarding our operations will be shown quarterly, but this is not relevant now. I don’t want to speculate.
One of the competitors turned to Arbitration Board (KDb) stating that the offer submitted by Synergon is irregular. What is your opinion on this?
The contracting authority’s (State Motorway Management Ltd.) decision is disputed by the competitor, not the application offer of Synergon. When I first saw this document I thought that they can really fear from the CITCC-Synergon duo. I personally believe in honest competition, and don’t want to comment on those actions of the competition that aren’t about handing in the best offer. We think that in an honest competition we can win. Their submission is ridiculous anyway. There was a similar case where the Arbitration Board made a decision, which is probably known by the company making the request. With this in mind, the real intention can be suspected behind this attack.