Thursday, 12 March 2009

Parity update

(By Anthony Miller – Thursday, 12th March 2009 3:50 pm). It was great to catch up again with Parity CEO Alwyn Welch – and just as well, as he put me straight on a couple of points in my earlier post (see Parity finds some solace in UK Public Sector). I picked up some interesting titbits too.

First, the buyer of Parity’s training business was not the Dubai-based management consultancy called ECS, but the Dubai-based special purpose acquisition vehicle, also called ECS, set up by the real buyers, who I suspect may or may not be a million miles away from UK IT training company, Thunder Bay, trading as New Horizons, who are underwriting the deal. New Horizons appears to be a US-based international direct and franchised training network. Their shares trade over the counter in the US and they turned over some $302m in the 9 months to Sep. ’08. Good luck to them, I say!

And let me amplify my comment on offshore delivery. True, Parity has none of its own people offshore, but they do partner with a couple of offshore players, viz. Bangalore-based Calsoft, and London-HQ’ed Endava, which provides services from Romania and Moldova. Now as it just so happens, I met up with Endava CEO, John Cotterell recently, and will tell you more about them another time.

Given the very modest size of Parity’s Solutions business (£22m revenues), partnering makes sense. In fact, 13% of Solutions revenues derive from Parity’s various partner organisations. Now here’s a thing you may not know. One of its partners is 2e2, the acquisitive, Duke Street Capital-backed IT services player led by CEO Terry Burt (see Netstore, 2e2 and the Application Outsourcing opportunity). But Parity is using 2e2 not for its traditional managed services but for the development of its own in-house ERP system. Another string to 2e2's bow.

But the big question is, where does Parity go from here? Welch wants to bulk up both sides of the business, and therein lies the challenge. On the recruitment side, Welch wants to diversify into other verticals within both private and public sectors but does not want to go further down the IT value chain into more commoditised skills. So far, so good. But I did get a bit twitchy when he mooted about Parity possibly expanding overseas again; I rather wonder whether expanding into non-IT recruitment sectors within the UK (as many of his competitors have done) might carry lower risk.

I worry (and have always worried!) about the Solutions business. We all agree it doesn’t have critical mass, and is unlikely to achieve it organically. There seems to be little cross-play between Parity’s Solutions and Resourcing businesses and so I think Solutions would better belong under the wings of a larger project services pure-play. As ever, it would all come down to price and that’s a tricky discussion just now. But with some 65-70% of revenues coming from the public sector, and a ‘sweet spot’ project size around £500K, you’d think there’d be a few interested parties. Whichever path he takes Parity along, we wish Alwyn Welch and the team well.

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