Three deals in one day as IT consolidation continues

Technology services group UXC Limited acquired troubled education software developer MXL yesterday in a sign the trend of consolidation within the IT industry is continuing.

The move comes as Melbourne IT has increased its 50% stake in SEO marketing firm Advantate to purchase the entire company, while distribution group itX has acquired the business assists of medical device distributed Sydmed in a $3.2 million deal.

UXC’s decision to acquire the troubled software company comes after MXL’s parent company, Entellect Solutions, had its shares suspended last month after a failed $26.5 million capital rising. It was placed into voluntary administration.

MXL was planning to distribute new software to over 125,000 students, until the collapse put that program into jeopardy. The company’s two largest customers, the Tasmanian Government and Brisbane Catholic Education, have reportedly expressed relief at the purchase.

While neither company has confirmed a purchase price, the AFR has reported the transaction was completed for about $1 million, with MXL to become part of UXC-subsidiary Eclipse.

Brad Stroop, chief executive of Eclipse, says the decision to acquire the company was based on a mutual customer base and similar technologies.

“We have a number of customers that we have in coming, and we also have an educational services focus so this allowed us to build on that capability. The technology is also something we were familiar with.”

Stroop is referring to the Microsoft .Net platform. Microsoft is expected to welcome the deal as MXL was a large user of this platform, and the giant is looking to the education sector as a key factor in its quest to dominate Google.

In terms of expanding the business, Stroop says they will take some time to get MXL settled into the existing business and then look at what opportunities come about for expansion.

“I think the first thing we need to do is get the current clients settled, and then look after their requirements, and then once we pass that that will give us scope to move on and look for other opportunities.”

Meanwhile, Melbourne IT has bought the remaining shares of SEO marketing firm Advantage from Fairfax Digital. The company said smaller businesses would benefit from the deal, which is reportedly not set to deliver material benefits during the 2010 year.

“Melbourne IT is Australia’s largest hosting provider to small businesses with more than 350,000 customers and we can see the incorporation of Advantate into Melbourne IT as a positive move which will allow both companies to grow the search engine marketing business further,” managing director Theo Hnarakis said in a statement.

Additionally, IT distribution company itX has acquired the business assets of medical services distribution group Sydmed in a $3.2 million deal. Managing director Laurie Sellers said in a statement the move would open the company up to the specialised medical devices market.

The three acquisitions highlight the consolidation occurring in the industry as companies struggle to maintain growth just after the financial crisis. Stroop says this activity will probably continue over the foreseeable future.

“I think the larger IT companies are being quite cautious. It really depends on the market, because if companies go along reasonably well and people are happy to survive, then that’s fine, but a lot of stressed assets come up on the market and people take a look at them.”

“Clearly there has to be more consolidation over time, because the market isn’t growing at 20% per annum anymore. It’s growing at 2-3% per annum, so it’s hard to get growth organically.”