Applied looks at acquisitions following Google investment

The company said its primary focus at present was growth in the UK market, but wouldn’t rule out expanding to English-speaking Commonwealth and former Commonwealth countries if the opportunity presented itself.

Applied recently obtained a nine figure cash injection from Google’s investment firm, Capital G.

Jeff Purdy, senior vice president of international operations, said the company would only invest if there was a good opportunity, at the right price point and a strategic fit.

“Commonwealth countries are interesting to us, where the legal systems, language and broker distribution is similar,” he said.  “Australia, New Zealand and South Africa would all align well.”

He said the company wouldn’t start from scratch in a new market.

“We would enter a market through M&A,” he added. “We would not go and plant the flag and attempt to build from zero.”

However, he said the company would not narrow its focus too sharply. “M&A is opportunistic by definition,” he added.

“It’s all very well saying we want to go into Commonwealth countries, but if Germany came to us with a great opportunity to make an acquisition that we felt was strategically aligned with our mission, I assure you we would look at it.”

UK

The company has around 10% of the market share in the UK, and is seeing annual growth of 30%. As a result, the UK is the fastest growing market for the company, compared to Canada which grows at 6% and the US at 3%.

Purdy said the fact that many incumbents in the UK were domestic, rather than global, meant that Applied was able to provide more cutting edge technology than rivals.

“The market has been underserved for many years,” he said. “We are in the market with a new offering. It’s the only new offering that’s been introduced into the marketplace in more than 10 years.

“Incumbents have generally underinvested in technology for their brokers. We invested $54m in R&D last year. If you added up all the investment of our competitors in the marketplace you wouldn’t have that amount.”

Applied currently has around 6000 users, out of potential pot of 60,000 users. Purdy said he hoped the company would have 25% of the UK market share in five years time.

“I would be very disappointed if we didn’t have 15,000 users in the market in five years,” he said. “We would expect to be adding thousands of users every year.”

Brexit

Applied is a US-headquartered company. However, Purdy said he did not anticipate the UK becoming an unattractive market, should the pound crash following a potential no-deal Brexit.

“We have not had a strategic discussion around changing course because of Brexit. Not one,” he said.

“Six years ago the Canadian dollar was on a par with the US dollar,” he said. “Now it is equal to around 70 cents. We have not made one strategic change as a result of that. Currency is outside our control. We look at the UK and Canadian businesses on their own terms.”

He added: “There are pros and cons. When the Canadian dollar devalued our cost basis dropped. You could say I want to hire more people in Canada. The same thing could happen in the UK.”