New look Grafenia growing through acquisition-focused model

Grafenia, the Manchester-based software services group, has shifted focus in the past year, it said in a trading update for the year ended March 31, 2023, today.

A year ago the business focused solely on the graphics space. It owned a manufacturing hub in Manchester (Works Manchester), business stores, superstores and online print platforms, and licenced its software around the world.

Two things have changed since then. It no longer owns Works Manchester and Grafenia no longer exists solely in the graphics space. It still owns business stores, superstores and online print platforms and continues to drive recurring revenues and product sales by licensing its software around the world through its Nettl Systems business unit.

But, following the sale of Works Manchester, as well as continuing the push for organic growth, it has doubled down on its acquisition strategy with the aim of creating long term growth in shareholder value. It is also considering raising further capital to build on its acquisitions drive.

Focusing on vertical market software businesses, Grafenia looks for niche platforms, with low churn where the majority of sales are recurring in nature. Through its specialist M&A team, Software Circle, it has built a healthy deal flow and successfully acquired four software businesses that have met its criteria.

Grafenia is now home to a stable of five software business units across multiple sectors. In terms of sales, Nettl Systems currently remains the largest of those. Each business is run in a decentralised way by its own management team, supported by the Grafenia board. Those businesses have been, in the main, acquired during the latter stages of the financial year 2023.

The five businesses are: Nettl Systems (graphics & Ecommerce); Vertical Plus (Ecommerce); Watermark (document management); CareDocs (care management); and TopFloor (property management).

The group said that, since releasing half year results on November 24, 2022, it has continued to focus on and invest in building the structure required to become a serial acquirer of vertical market software businesses.

In that time it has successfully onboarded its newly-acquired businesses, which are contributing to profitability.

The business expects to end the full year with sales from continuing operations in excess of £11.6m (2022: £8.2m), an increase of £3.4m (41%).

Approximately £9.5m (2022: £8.2m) of total sales came from the Nettl Systems business, 16% organic increase of £1.3m.

Also, £2.1m of total sales was generated by the four acquisitions acquired during the latter stages of FY23, a 26% growth in sales by acquisition.

Sales from discontinued operations were approximately £0.9m (2022: £3.4m).

Grafenia expects its operating businesses to generate a positive EBITDA of £0.4m after central costs of £0.8m. Deducting the associated non-recurring deal costs involved in the acquisitions, the EBITDA overall is £0.1m (2022 £0.3m).

With the acquisitions that have been added to the group, on a run rate basis, annualised sales would be approximately £17m. The business revealed today that it is currently considering raising additional funds to continue the execution of its acquisition strategy and the growth of the group.

Cash at March 31, 2023, was £2m (2022: £1.5m). During the year the group utilised its bond facility issuing £11.2m of Bonds, at nominal value, raising £9.5m before expenses. It deployed £9.6m of capital. Net debt as at March 31, 2023, was £16.3m (2022: £5.3m).

Gavin Cockerill has successfully led the group’s repositioning as acting CEO over the past 12 months. After an extensive board review, it has been confirmed that Gavin will lead the group as CEO going forward.

Chairman, Jan-Hendrik Mohr, said: “The board is very pleased with Gavin’s leadership over the last year.

“We started with the idea of becoming the right home for vertical market software companies in the UK and Ireland. Gavin has combined the existing strengths of our rich legacy in Nettl Systems and applied that to our growing group of software companies.”

Grafenia said it is cautiously optimistic about the upcoming year. With a full year’s trade from its newly-acquired businesses, the goal of achieving EBITDA at 10-15% of sales, after central costs, is a realistic target, it added.

The search for software businesses continues and deal flow looks healthy. More detailed progress will be revealed when the 2023 final results are issued at the end of July.