Aricoma Group plans to step up M&A as it aims to become a pan-European player

Aricoma Group, a Czech IT holding backed by investment group KKCG, plans to step up M&A to help it become a pan-European player, KKCG's Technology Investment Director Michal Tománek said.

The group generated CZK 7bn (EUR 262m) revenue in 2019 and plans at least 10% growth this year, Tománek said. It is aiming to double or triple revenues within around four or five years, he added, at which point it is weighing an IPO, as reported in a separate story.

Aricoma Group is in advanced talks to acquire two to three targets by the end of the year, he said. One is a Western European company and the deal size would be in the hundreds of millions of euros range, he said, declining to further specify. The other two are in the Czech Republic, he said, and each generate revenue in the tens of millions of euros range.

While the group’s focus for further expansion is Western Europe and particularly Germany, the Nordics and Benelux countries, it is also interested in opportunistic acquisitions in central and eastern Europe, he said. Besides the targets it is in talks with, management is also looking at around eight further targets in the Czech Republic and Western Europe, he added.

In September 2019, Mergermarket reported, citing CEO Milan Sameš, that Aricoma Group was in talks to acquire several targets in the Czech Republic, Germany and Scandinavia.

KKCG recently appointed Ludovic Gaudé as senior adviser to Aricoma Group to help step up its M&A activities, Tomanek said. Aricoma Group is interested in hearing about potential targets from advisors, Gaudé said, and in working with them on a regular basis. It also has an in-house team to identify potential targets, he noted.

Aricoma Group is focusing on custom application development (CAD) and cyber security, Gaudé said, which are scalable segments with international perspective. While it is looking to buy platform companies involving an investment above EUR 100m, bolt-on acquisitions could be smaller, he added.

It prefers to buy majority stakes rather than whole targets, leaving founder-owners with minority stakes and ongoing roles in the companies, Tománek said.

Acquisitions to scale up and bring additional competences

Acquisitions will help Aricoma scale up as well as bring additional competences such as design, Gaudé said, adding that scaling up will help it win larger projects. Aricoma is already the Czech Republic's largest IT group by revenues and one of largest custom software developers in central Europe, he said.

The COVID-19 pandemic has slowed down M&A processes, making sellers more cautious and shifting deal-making online, Tománek said. Quarantine restrictions have delayed M&A by six months, and the group is still in talks with targets from last year, he said.

However, KKCG sees significant potential in IT services due to digital transformation in most economic sectors, the growth in cloud services, increasing outsourcing as companies seek to cut costs, cyber security and a shortage of IT specialists.

The coronavirus pandemic has accelerated adoption of digital transformation and remote working, Gaudé said. While some Western European markets were previously more traditional, increased remote working due to the pandemic has made them more accepting of outsourcing and of developers working in other countries, he said.

While Aricoma's portfolio companies are all profitable and growing by an average 10%, the pandemic is however creating some uncertainty and client companies are less willing to commit to budget plans for IT projects far in advance, Tománek said.

Gaudé spent 15 years in corporates and a further 15 years in the tech and start-up space, in roles most recently including CEO at intive, a German digital transformation company that was sold to Mid Europa Partners in December 2018 for EUR 100m, as reported.

Aricoma Group comprises Czech companies AEC, AUTOCONT, Cleverlance, DataSpring, Internet Projekt and Cloud4Com. It offers IT services for corporate clients, including ICT infrastructure and cloud services, information systems implementation, ICT operations and development outsourcing, software development and ICT security; and has more than 2,000 employees.

Earlier this year, KKCG divested two companies as part of its strategy to focus on its core, more scaleable activities. It sold the Czech Republic's largest contact-centre operator, Conectart, to Genesis Private Equity Fund III , in June; and CAD Studio, which provides technical support services for Autodesk software, to French software company Arkance in May. KKCG is not planning further divestments of Aricoma Group companies, Tománek said.