Zetta gears up for acquisitions

23/10/2017 - 14:22

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SPECIAL REPORT: Privately owned ICT firm Zetta Group has mapped out multiple growth paths, including Asian franchises and larger acquisitions.

Zetta gears up for acquisitions
Nathan Harman says an ASX listing is his least favoured option. Photo: Attila Csaszar

The appointment of a Sydney-based M&A expert to Zetta Group’s board of directors provides a clear pointer to the company’s priorities over the next few years.

Nathan Harman and Jim Di Menna established Zetta 15 years ago, and the two founders are still the major shareholders in what has grown to become the 12th largest ICT firm in Western Australia, according to the BNiQ Search Engine.

Its strategy has pivoted as technology has changed the market.

“Cloud computing came along,” Mr Harman said in a matter-of-fact manner.

Zetta now has a large customer base on the east coast, and plans to push strongly into Asia after recently opening its first franchise in Jakarta.

Its growth outside WA has been led by its cloud infrastructure business, where Zetta has built expertise in specialist areas such as disaster recovery and virtual data centres.

Mr Harman said acquisitions would play a more significant role in the company’s future.

To that end, it has recently appointed Sydney-based Merlin Allan as a non-executive director.

Mr Allan spent more than a decade with ASX-listed SMS Management & Technology, with most of that time as director of M&A.

“Clearly his M&A expertise is something we are interested in,” Mr Harman told Business News.

“We’ve done little acquisitions but we’re looking to do progressively bigger ones.”

That would give Zetta the same growth opportunities as listed ICT companies such as Empired and Cirrus Networks, which have completed multiple acquisitions in recent years.

Mr Allan’s appointment comes after former Verve Energy chief executive John Lillywhite joined Zetta’s board last year as non-executive chairman.

Mr Lillywhite’s experience in corporate governance and management was a key factor.

“That’s been a good journey, especially for me,” Mr Harman said.

“I’m basically a techo at heart, so I’ve been beefing up my skills in strategy and governance.”

Zetta has completed eight small acquisitions, including internet service provider Highway1 and Sydney-based Conexim.

The growth has been self-funded, helped by a windfall profit from the sale of internet messaging business mBox, which Zetta bought in 2007 and sold to US-based J2 Group three years later.

“If you can self-fund, that’s definitely the way to do it, you don’t dilute your equity,” Mr Harman said.

However Zetta modified its funding strategy for the Conexim deal.

“We used some debt, mostly to build a relationship with the banks if we want to do something bigger,” Mr Harman said. 

He said the group was likely to seek private capital as it pursues further acquisitions.

“At some point, ‘how do you fund this?’ will become a more interesting question,” Mr Harman told Business News.

“A listing is our least-favourite option, but some sort of equity event is definitely on the cards in three to five years.

“A private investor would suit; we’re not saying yes or no to any option, but certainly we’re getting ourselves ready.”

The injection of capital will also allow current shareholders – the two founders plus 12 staff – the opportunity to sell part of their holding.

“Jim and I would like to sell down a bit,” Mr Harman said.

“We love the business and we don’t want to leave it, but we probably want to get a bit of return on our investment at some point.”

Mr Harman’s experience of M&A deals includes the purchase of his previous business by UK-based Marconi, which did not have a happy ending.

“From 1997 to 2001, they bought 100 companies globally; Harman IT happened to be the very last one of those,” he said.

The dot.com crash triggered a major shake-up at Marconi, which shut down the Perth business two years after buying it.

Mr Harman had already left by that stage, and was soon able to recruit 10 former colleagues for his new Zetta business, and they are still with him.

Zetta was originally established with a standard model of outsourcing specialist IT services.

The IT services part of the business has continued to the present day.

“Our proposition is local and expert, that’s where we put our effort,” Mr Harman said.

“We’ve deliberately said we’re just going to stay in Perth.”

The big growth area has been cloud infrastructure.

“We have our own infrastructure as a service business, Zettagrid,” he said..

“That started in 2010 and has grown incredibly well.”

Mr Harman said the cloud business accounted for half the group’s revenue.

“We’ve got gear in 11 data centres around the country,” he said.

“Sydney and Melbourne are our biggest zones now, so even though we’re a WA company we have more business on the east coast.

“It’s a good story of diversification because once the mining construction boom went off the boil, our WA Zettagrid business suffered terribly but our east coast Zettagrid business flourished, so we’ve been well protected by that diversification.”

Zetta is targeting the east coast for growth over the next two years, but beyond that expects most growth to come from Asia.

“We plan to have zones in at least Singapore, Kuala Lumpur, Tokyo and Hong Kong,” Mr Harman said.

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