It is inevitable that the drive for efficiency will see a growing uptake of new technologies in the provision of public services, ranging from the increasingly familiar cloud computing to more complex like robotic process automation.
As the public sector catches up with the corporations leading the way, both sides are no longer viewing consultancy behemoths as the only viable facilitators of large projects.
But in turning to smaller digital specialists, it is governments that are leading the way, which is where Panoply Holdings (LON:TPX) aims to come in.
A move towards SME providers?
The company, which floated on AIM last December with a £5.4mln fundraising for a £30mln market cap, was founded by Neal Gandhi, who is chief executive.
With a track record in the tech industry that began in the 90s and includes a healthy mix of Tech Track 100 companies and profitable exits, Gandhi says in recent years he had noticed increasingly that new clients of his tech interests were won after becoming dissatisfied with their larger providers.
This was mirrored by the direction of public sector change that is clear to see.
In the past four years, for example, that the UK government’s Digital Marketplace procurement platform has been operating, more than 90% of the suppliers have been small and medium-sized enterprises (SMEs).
While the UK is not lagging in terms of digitisation, there is still huge potential for growth, with the government committed to increasing SME spend to £1 in every £3 by 2020. By that same year, the market for ‘govtech’ is seen tripling in size to £20bn from the £6.6bn recorded in 2015.
“The trend is well established in government and we’re seeing that trend beginning to be adopted in the commercial sector, with very large commercial organisations also recognising that they need a new kind of provider,” Gandhi says.
“I’ve been growing tech services companies pretty much my whole career and this is where I see the market going.”
Becoming a digital native
Trading as The Panoply, the company’s rather grandly stated purpose is to “help clients navigate the fourth industrial revolution”.
But as Gandhi explains this just means its clients, of which 191 were billed in the year to end-March, are looking to solve 21st century problems: how do they become digitally native, how do they become cloud native, how do they transform their services to the kinds of services that users today are looking to consume.
“Historically they’ve looked to 20th century companies to help them, huge monolithic organisations, and have regularly not had the results they were looking for,” he says.
“So we’re here to help them get the results they were looking for, as we are cloud-native, we’re a 21st century company, we’re a purpose driven company not just a bolt-on on the side, and as a consequence of that we attract the right kind of staff and the right kind of companies to our group.”
A decentralised operating structure sees Gandhi and other board members sitting as non-executives in the various subsidiary companies.
Buy and build strategy
As part of a buy-and-build strategy eight agencies and consultancies have been acquired, including London-based digital agency Manifesto Digital, digital transformation consultancy Notbinary, Oslo-based strategy and management consultancy Bene Agere, ‘thought leadership’ events and publisher D/SRUPTION, and GreenShoot Labs, an artificial intelligence solutions provider for businesses
This was all completed by the end of January, to which was added a subsidiary of Notbinary called human+ to focus on robotic process automation in the government and not for profit sectors.
In June came the most significant purchase so far, the £11.8mln acquisition of FutureGov, where Panoply beat off a number of other competing interests to add what is a well-respected disrupter to the large IT services incumbents in the public and health sectors.
With FutureGov having last year made revenues of £6.4mln and profit before tax of £1.45mln, it will represent around 45% of group turnover and be immediately earnings enhancing.
Indicating the attraction of the model to such companies, the £6mln cash element of the £11.8mln initial payment was almost all paid to exiting backers, with the rest in shares taken up by the FutureGov management team. Mostly-share-based earn-out clauses could see the consideration rise to £21mln.
While around a third of revenue from the other businesses was from government work, mostly central government and arms-length bodies, Gandhi expects that to be much larger this year, with FutureGov bringing a bulging book of work with local authorities.
Gandhi says housing is an increasing area of business and health is another growth area.
In technology areas, he is excited about GreenShoot Labs’ work in conversational interfaces where recent contracts with the Defence Science and Technology Laboratory and global audit firm BDO show “this is a massive opportunity for us”.
Pro forma results for the year to March, before the addition of FutureGov, saw revenue rise 42% to £22.1m and underlying earnings (EBITDA) of £3.5mln.
For the four actual months in which it has been operating together post-IPO, there was a statutory operating loss of £1.6mln.
“We’ve invested quite heavily in the first half of the year with a view towards that delivering returns in the second half of the year,” Gandhi says.
While central costs are probably a little bit high for the size of the company Panoply is today but as more acquisitions are made this base is not expected to grow much more.
“We as a central team are here to help our companies to grow, we’re force multipliers, we’re here to be value-add, as well as do the M&A and scout the market, doing most of the deal origination.”
Gandhi says more acquisitions are in the pipeline and with the shares already up from their 74p IPO price to 90p today, this looks like one to watch.