Comment: Confusion and obfuscation as BT moves to sell Tikit

While on holiday last week I got a rather out of the blue email on 4 August from a contact in the legal tech sector saying “BT is selling Tikit for £80m but it’s only worth £43m.” Momentarily putting down my highly intellectual murder mystery book, I thought, ‘BT is doing what?!’

Briefly reaching out to Tikit, I was informed that this was all unhelpful rumour and speculation, so I went back to my fast-paced thriller in the knowledge that if I pretended to be on holiday for long enough it might just feel like the real thing.

Back in the office this week, and my sources confirm, guess what? The Sunday Times journalist who first broke the news that Tikit is for sale isn’t smoking crack after all.

BT, as part of new CEO Philip Jansen’s stated objective to focus on the telecom giant’s core business and build a network for ultrafast fibre broadband, is indeed to sell off a number of fringe businesses, of which Tikit is one.

Tikit sits within BT’s Enterprise division, which was created last year out of the merger of its wholesale, public sector and business units, in what The Register described at the time as “giving its flagging b2b divisions a corporate facelift” and “rearranging the deckchairs to launch the good ship Enterprise.”

It is from this division that on 6 August BT announced that it has sold its fringe fleet management business BT Fleet Solutions to German private equity firm Aurelius.

The predictions are now that Tikit will be acquired by a private equity buyer – The Times excitedly refers to the fact that “bankers expect it to be sold for a premium due to keen interest from trade buyers and private equity firms.” It adds that “Thomson Reuters snapped up legal software business HighQ last month” (did I mention enough times that Legal IT Insider broke that story?) As a very quick aside, when the bloody hell did legal tech become quite so interesting to the outside world?

Hg (formerly Hg Capital), which is hugely acquisitive in this space and known to be looking for further legal tech targets, will be one to watch.

It’s common knowledge that Tikit CEO Simon Hill and CTO Mark Garnish have long been looking at a private equity buyout/MBO – we reported on it most recently here – but this sale changes the goalposts. Watch this space as to how that situation now plays out now.

As to the value of the business and the £80m figure, in 2013, according to official Companies House filings, Tikit’s revenue for the year ending December 2012 was £20.3m – a healthy increase on £18.7m the year before. However, the accounts for the year ending 31 March 2018 show that turnover is £14.5m – down from £17.5m in 2017 – a drop of 17%, which is, as Tikit said in the 2018 accounts, largely due to the end of reselling iManage and transition to NetDocuments.

Gross profit was £8.07m, down 4% on the previous year, which Tikit said reflected an exit from providing iManage services (albeit offset by the focus on selling own products Carpe Diem and Partner for Windows).

BT bought Tikit in 2012 (completed January 2013) for £64.2m at a multiple of 3x turnover.

While the latest accounts for the year to March 2019 will provide a more up to date financial picture, based on the last declared turnover at the same multiple, we aren’t talking anything like £80m. However, that comes with the giant caveat that the sums being pumped into the legal tech sector both in terms of investment and acquisition are hugely inflated. TR paid an astronomical amount for HighQ.

There is also a big question hanging over what, exactly, a private equity firm will buy. One vendor with direct significant experience of private equity investment told me: “If Tikit gets bought by private equity, the PE will be likely to want to ditch the consultancy and only buy the software.” It’s difficult if not impossible from the accounts to work out what the value of the P4W and Carpe Diem business is worth alone or how much they have grown.

There’s not much point in diving into the impact of all of this on NetDocuments until we know more, but it’s worth noting that the Utah-headquartered software provider has been building its London salesforce and has added Nikec to its partner program.

In conclusion? Despite the inevitable surprise when a couple splits, Tikit’s marriage to BT was not made in heaven and there is no surprise that they are to go their separate ways.

Writing about the sale of Tikit to BT in 2012, then Legal IT Insider editor and founder Charles Christian said: “No, this doesn’t mean you now phone David Lumsden if your phone at home doesn’t work (and thank you Geoff Hornsby of HP iManage for being the first to make this joke). What it does mean is that BT is buying sector expertise in the legal and professional services vertical market. AND that Tikit now has the potential to become THE biggest player in the legal cloud, managed services, ICT convergence sector, thanks to BT’s extensive comms network infrastructure.”

That simply hasn’t happened. What started out as an ambition to spend lots of quality time together and have joint interests has never really come off, not helped by the legal sector’s battered faith in BT.

The interesting thing now is what Tikit’s next chapter looks like. I predict it won’t be long before we find out.

BT declined to comment.