Pick of AIM by Miles Nolan

Though not without risk, buy-and-build strategies can provide a rapid means to boost scale. Two very different situations, with their sights on an exit, are highlighted below

I recently met up with Ian Smith and the management team of AIM counter Accumuli, once known as Netservices. For those unfamiliar with Smith, he is a consummate deal-doer, and well versed in the IT and technology space.

Following the sale of its core business for £3.3 million, it was rendered a cash shell bar a property in Salford and a 3 per cent stake in a trade insurance firm. The focus is now on the security services space, a market that was estimated to be worth $19.9 billion in 2010 – and should top $30 billion by 2014.

As witnessed by the infamous WikiLeaks saga its an area that is increasingly in the news due to hacking, terrorism and the proliferation of new devices leading to misuse and attack.

One buzz term is MSSP, or Managed Security Services Provider – in this area, the UK is growing at 20 per cent a year and its here that Accumuli is targeting.

The market is hugely fragmented, and Accumuli has wasted little time in making its mark, with three acquisitions already secured: Tuscany Networks, Fujin Technology and Boxing Orange. All are profitable on an underlying basis and Accumuli expects this to increase as it targets the enlarged blue-chip customer base to cross-sell products.
Accumuli sells off-the-shelf type products, but also has valuable intellectual property, which has largely been developed in response to specific requests but can be sold at a decent margin to others. Services include advice and support on firewalls, security and even hosted cloud screening.

A £5 million placing at 6.5p a share last year attracted investors such as ISIS, Downing and Rathbone. Recent interim results for the seven months to March were largely academic due to acquisition costs muddying the water. However, for the year to March 2012 it would not be unrealistic to expect sales of £15 million and a decent bottom-line profit.

As if often the case, larger players with deep pockets are only too happy to allow smaller entrants to do the hard work by consolidating the market. Recent success stories include the acquisitions of Vistorm, Integralis and Data Integration. Smith owns 9 per cent so has ‘skin in the game’ and is on the lookout for more deals, whereupon I would not be surprised if the noise created attracts a suitor. At 10p, Accumuli warrants a closer look.

In a not dissimilar way David Evans and Julian Baines are working hard to create a major force in the medical arena, with their new vehicle EKF Diagnostics. We highlighted the shares as a nap for 2011 due to the skills of this dynamic duo in creating shareholder value. They were previously behind the float of gold reagents specialist BBI on AIM at 47p in 2004. Just three years later BBI was acquired by US giant Inverness Medical for 185p a share, or £83.7 million.

Based in Germany the original EKF business reversed into shell company International Brand Licensing last year. It makes diagnostic kits and reagents for laboratories, doctor’s surgeries and sports clinics with distribution in over 65 countries. Current trading is strong, with sales up 28 per cent in the first quarter of 2011.

But, the real excitement at EKF is acquisition number four – Texas-based Stanbio Laboratory, for up to $25.5 million. The deal brings new products and a solidly profitable company, but crucially takes EKF into the US, the world’s largest market.

The move undoubtedly helped secure an exclusive deal with Alere (the new name for non other than Inverness Medical) to sell its blood testing Hemo_Control device and cuvettes. A recent over-subscribed placing secured £13 million and brought new institutions on board. Now with scale, Evans, also chairman of AIM success story Immunodiagnostic Systems, combined with the energetic Baines, look well placed to deliver a timely exit once again.