Topicus: M&A Strategy & Growth Runway | In Practise

Topicus: M&A Strategy & Growth Runway

Former Director at Topicus

Why is this interview interesting?

  • Topicus culture
  • M&A strategies; IRR hurdles, integrations, synergies
  • TOI vs CSU growth opportunities
  • How Europe is a different hunting ground relative to US
  • Challenges for Topicus to grow

Executive Bio

Former Director at Topicus

The executive enjoyed 7 years working at TSS across multiple portfolio companies. The executive was responsible for sales and marketing and also acquired multiple companies according to the TSS formula.Read more

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Interview Transcript

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

Do you just want to open up and share a bit more about your background and, specifically, what you did at Topicus?

Back when I joined in 2014, it was Total Specific Solutions, TSS. It was acquired by CSI; I think it was acquired at some time in the summer of 2015. From 2014 to 2020 I was at TSS.

When I started, I was reporting directly to Han Knooren who is one of the group CEOs and, in multiple projects, I also had direct contact with Daan Dijkhuize who was the big CEO of TSS. Back then, I think the main office only had 15 people and now it is around a few hundred. In my last year, I was coached by Ramon who is another of TSS’s group CEOs, now Topicus. I also did presentations abroad, for all the operating groups within CSI. That was with Mark Leonard at one time. He was cool. I met him a few times, actually. Once in Canada but also a few times in the Netherlands. He’s brilliant. He knows his numbers. I also like his philosophy about putting the responsibility as low as possible in organizations; he took that to the next level.

Did you enjoy working there? Did you learn a lot? Why did you leave?

I enjoyed it and I learned a lot; it was truly a learning curve. I also think I’m a totally different person than I was before I joined TSS. I was very lucky joining at that moment in time, because it was very small. You could go into Robin’s office, asking questions and you were in it together. Back then, TSS only had eight or nine companies and now they have around 90, so it’s a lot bigger. It was also very decentralized, but centralized in location. Every company was only two hours’ drive away, except for one, which was in Romania. There was a lot of knowledge sharing and people were truly into the spirit of CSI, embracing the best practices.

It was also an extreme personal journey for me, because I invested a lot in personal coaching. Probably for the five years that I worked there, it was filled with personal coaching, so it also changed me and enabled me to grow, as a person.

Why did I leave? The only reason I left was due to the fact that I was still one of the youngest people to be an MD in TSS; I was 35 back then. A lot of people – especially when they sell their companies – are older, especially in the markets that TSS is operating in and so it felt very lonely at the top. As an MD, you are not part of your company but you are also not part of TSS, so you are always in between and I really like working within a team itself. One of my ambitions is to do a scale up company. I had an opportunity to invest in a scale up company, where I am today. There is a team, and so now we are running a company with three of us, instead of myself with the support of TSS on finance, HR and so on. But it was never your team, your co-workers. It was always, these are my MDs or my managers or the people that did my finance, the person standing next to me, brainstorming about some decisions, and that’s why I left. If was 20 years older, I would probably have stayed.

Could you describe some of the businesses? Could you give us an example? We know what BMS is, but could you give us a specific example of a typical business and what it did and how it works?

I think one of the most typical businesses in TSS nowadays, but what they are focusing on, is vertical market software, which is a very localized niche market – especially in Europe – within the boundaries of a country because there is a lot of legislation in the software itself. It’s really difficult to have a company in the Netherlands and do exactly the same in Germany, because there is different legislation, so you actually have to rewrite the whole code. That makes it very small, local and it has low competition because the market size is very small.

If you looked at the portfolio, the main industries are a lot of public, social and government companies. They also have other companies, of course, but they are always very specific industries, with a specific demand. For example, one of the companies makes healthcare software, within the Netherlands. That is only for the Netherlands, for 17 million people.

Let’s say, for those 2,000 customers, are you saying there would be one software that all of them would use, or are there two or three?

In 2015, there were four and now I think two or three are left.

Would Topicus own all three of them or two of them? How would that work?

In this case, they have the leading one; the one that has the biggest market share. But for an example with regards to notaries, I’m not sure about the number, but let’s say the market share in revenue is around four million, for the Netherlands. There may be 500 to 600 customers in the Netherlands and I think there are four or five companies and TSS owns three of them. That is one of the big differences between TSS and CSI, because TSS operates in Europe. To make a comparison, Chicago has 20 million people living in one city; the Netherlands, as a country, has 17 million; Belgium has 12 million. Every country has its own regulations, with a different law and a different language and a different culture. It’s easier if you have a software company in Chicago and you move to New York. But that option doesn’t exist in Europe. Where CSI is more focusing on the worldwide vertical, until 2017, TSS was only focusing on the Netherlands. There were only 17 million people so it was very specific.

What TSS did was to look into the market in the Netherlands, they had the opportunity to buy multiple companies, in the same industry, own that industry – within the regulations, of course – and control market more than CSI could if they have the same companies in different countries, because then they are not adding value to each other. They can just share best practices and how to run the business, but they cannot share, for example, the added value that they can provide to the market and to their customers. That is one major difference between TSS and CSI.

I just want to go a little more into the products that Topicus has. I’m wondering how complicated they are? Does it involve the long integration service, before new customers come on? How difficult are they to swap out? Is it the case that once they’re in, they’re in?

The answer to your question before the comma is, it depends. After the comma, it depends on the market, especially in public and social industries. In those type of industries, if they are your customer, they are your customer and they stay there for 15, 20, 30 years. If they leave you, you can forget about them for the next 20 or 30 years. In general, in the focused market, if it is either in the Netherlands or in France, if they are your customer and they are unsatisfied, they will still give you the opportunity to resolve it, for several years. Then, at a certain point, they will leave.

The TSS software is always into the core of the company itself. If you to change, first of all, you have the assess the cost of your contract. When can I stop my contract? Some contracts are three, five, seven or even 10 years. Then you have your conversion cost of training your new people making sure that the data goes away. It can take up to a few months, maybe nearly a year, depending on which specific industry you are in, before you can actually transfer to a different system. Then you have all the elements of the new system, so it could take you two or maybe three years, before you are satisfied with your new system.

Then there is the question as to whether it is worth changing or is it better to stick with what you have? That’s more about the companies that are available elsewhere and the size of contract. There are companies that have a recurring revenue per customer of maybe 50,000 or 100,000 or more, but then you also have the customers that only do 1,000 per year. Their transactions, of course, cycle much faster. But because it’s public, because it’s social, because it’s healthcare, they are less competitive because the advantage that they will get from going to a different system is not about adding more revenue to the company; it’s just about resolving the complaints that they have and hoping that the complaints will not be there with the new system. But, most likely, they will have different complaints.

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