The Aricoma Group buys several firms every year, and it is currently the largest IT firm in the former Czechoslovakia. Late last year, Macedonia's largest software development company, Seavus, became part of the Aricoma Group.
In this interview, Milan Sames, CEO of Aricoma, talks about his business plans, as well as future acquisitions at home in the Czech Republic and in Europe: "We will probably complete such an acquisition by the end of the year. The acquisition in the Czech Republic should cost us hundreds of millions (Czech crowns) in total," said Milan Sames. Aricoma is currently part of the KKCG Group, founded and led by the successful Czech entrepreneur Karel Komarek.
Your subsidiary AutoCont has recently got one of the largest current European IT contracts. For billions it is supposed to deliver and manage data centres for the EU institutions in the next four years. Will the number of similarly large contracts increase?
- We have established an AutoCont branch in Belgium where we built an international team. So far, it has ten people, but this number will grow very fast, and we want to start using the branch gradually for expanding business in the entire Western Europe. We believe the newly acquired contract is a sufficient signal for them to start taking us seriously. We are definitely ready for similar contracts.
Will this branch focus only on the public sector?
- That can be the case in the beginning. However, we will focus on the private sector in the future.
How many employees do you want to have in the Brussels branch during the final phase?
- We are not concerned with the final phase right now. I can say we expect tens of workers to participate in the segment of deliveries of IT infrastructures for the EU and other international institutions in Belgium, and also in the Czech Republic. Nevertheless, it is necessary to look at the western expansion from the point of view of Aricoma as a whole, which we want to grow inorganically as well. That can mean acquisitions of firms with tens to hundreds of workers. But it is a mountainous task to find and procure such firms.
AutoCont reached the short-list of the European Committee for IT tenders already three years ago. Is this the first contract you have got?
- Firstly, it is important to say that we have acquired, together with the other four firms, only the right to strive for this bundle of contracts. It contains tenders of around 16 billion CZK in total. Since then, we have won a few smaller ones, but they were within hundreds of millions in total.
In terms of the public contracts, how is the Czech Republic doing? Almost every firm from this sector is either complaining about or refrains from commenting on them.
- The Czech Republic has indeed rested on its laurels when it comes to digital transformation. We froze approximately ten years ago. Since then, we have barely moved. States like Lithuania, Latvia and Estonia are overtaking us dramatically. The ambition of Aricoma is to change that, and for the Czech Republic to become a showcase of state digitalization, at least in Central Europe.
Where is the problem?
- I am convinced it does not matter who is governing the state. It is not about that. It is a mix of different problems. For example, from the cultural standpoint, the wrong thing is that people generally perceive information technologies and digitalization as a “side thing.” It has changed for businesses - thanks to the competition, digitalization has become part of their commercial offer and business strategy. In other words, the manager can no longer separate the business from digitalization and have two IT pros in the corner of the office – that is in the Stone Age. Today, digital technologies must be a natural part of the entire business culture of the firm. The same change in thinking should happen for states. However, it is not happening.
What should the state improve?
- The right step is, for example, the law which was enacted last year on the right to digital services. However, it is de facto still just a declaration. That means the state has still a long way to go. The goal should be to enable the citizen to access a digital service every time they need to. The sooner this is possible, the better..
It is almost a rule that the winning firms do not manage the tender 100%, consequently their digital services experience, at the very least, problems during the launch. Is it common abroad as well?
- It is necessary to differentiate here. It would be great if everything worked immediately, but if a complete and complex digital service experiences some failure in the first few hours, I would not consider this a tragedy. The problem arises when servers keep failing on a long-term basis or something burns down. Basically, when the quality, capacity and safety are underestimated. That is wrong and is again related to our culture. Some organize events where they show the e-shops they have built during the weekend and that the state is incapable because it cannot do the same, not even in half a year. In reality, it seems that such events do not lead to any quality solution and will never be able to. When it comes to states, the built information infrastructures must be thought through, sufficiently robust, and mainly safe.
AutoCont has already procured a few major public contracts, which your newly acquired company Komix also specializes in. How important is the public sector in comparison with the private sector in relation to sales?
- For us, the public sector constitutes a minority of sales, but that does not mean it is unimportant. Quite the contrary. The digital transformation of the public sector in the Czech Republic and Europe is an absolute necessity, and it will surely bring about more opportunities.
You mentioned acquisition plans abroad. Is something awaiting signing already?
- You mentioned acquisition plans abroad. Is something awaiting to be signed already?
Can you at least describe your acquisition strategy?
- Our goal was to become the best provider of IT services in former Czechoslovakia. We have already achieved that in terms of sales and profit. That is why we are no longer planning large acquisitions in this sector. We will rather purchase medium to small firms here with hundreds of employees that fit into our puzzle in order to offer a complete portfolio of services. For example, areas like business intelligence (the analysis of business data - editor’s note), CRM (a system for managing relationships with customers - editor’s note) and others. We will probably have completed one such acquisition by the end of this year. The acquisition in the Czech Republic should cost us hundreds of millions more.
And other countries?
- There are some ongoing acquisitions too, but the process of signing contracts is difficult to predict. I assume in the next summer at the latest. However, our strategy abroad differs from the strategy employed in the domestic market. It would be naive to think we will be a leader there one day. Of course, we have our eye on three sectors where we want to play in the first league. Firstly, it is the software units development (CAD - custom application development), cybersecurity, and finally cloud solutions for firms. Within five years, we would like to achieve a profit of approximately a hundred million Euros, with the larger half coming from abroad.
Can you state some examples of what we should imagine under the term "complex software units", for example from the point of view of a regular employee, client or management?
- When working on large software development, we usually collaborate with bigger commercial subjects, like banks, telecommunication firms or industrial businesses. To banks, we can, for example, deliver a key system via which internet banking functions. In the very same way, our customers will use our system when paying with a card or when submitting electronic inquiries to the bank.
How much have you set aside for acquisitions?
- We do not think about it this way. I would say our approach is more opportunistic - in the positive sense of the word - and we look for what fits our group the best. We are not in a hurry with the acquisitions. We have time.
Is it possible to say how much IT firms cost in proportion to the operating profit (EBITDA)?
- Generally speaking, the product firms are the most expensive in the field. On average, their price reaches high multiples (EBITDA), sometimes it is ten times higher or even more. IT firms in the service sector, which we are interested in, usually cost between five to eight times EBITDA. Of course, it cannot be considered as a flat rate - there can be fluctuations both upwards and downwards.
For a long time you have been saying that you are the biggest IT holding in former Czechoslovakia. Who is bigger in Central Europe?
- We do not think about it this way, we do not concern ourselves with it further, neither do we analyse our competition. Indeed, there is probably someone like that, but I am not sure who. It is most probably someone from Poland like the company Asseco. But I do not know the precise numbers.
How did the entire Aricoma perform the last year?
- We have probably 8.5 billion crowns of consolidated sales and approximately 900 billion crowns of profit (EBITDA). Leaving acquisitions aside, the year-on-year organic growth of profit was approximately 10%. We would like to continue with the same rate this year.
You have mentioned that software development (CAD) and cybersecurity are supposed to play a steadily bigger role for you. To what extent did they contribute to the total sales last year?
- CAD constitutes approximately 30% when it comes to sales while it is growing very fast. The pillar of cybersecurity is also growing, but despite that, it has been significantly less profitable, 500 million crowns. The rest of the turnover comprises infrastructure. For example, data centres and cloud solutions, but also services with the so-called developed infrastructure.
What did affect last year results the most?
- At the beginning of the pandemic, businesses were largely purchasing technologies and services that enabled workers to utilize so-called remote communication. This trend then quickly passed, which led to an increase of offers for the complex digital transformation of firms, which were beginning to realize that it was no longer possible to postpone this step.
Aricoma has three thousand employees today. What are your plans in this area?
- We want to maintain a yearly growth of some per cent - always a bit higher than the market. We would recruit more, but the situation in the labour market does not correspond to it, unfortunately. There is nowhere to recruit. We are looking at the whole of Europe, mainly the east, but the situation is not any better. We already have more than a thousand workers outside of the Czech Republic. That is more than a third of all our employees.
With regards to the planned expansion abroad, I expect that the fraction of foreign workers will increase. Is it so?
- Definitely! We are counting on that.
The problem with the shortage of IT workers has been discussed in the media for a long time. What is the primary cause?
- It is partially caused by the fast and precipitously growing demand for these skills. A range of firms has solved this lack by outsourcing workers from countries like India or China. However, this approach has its limitations. The European customers want workers from the same time zone and with the same cultural background.
You do not see a problem in education?
- Only partially. I am a firm believer that it is very challenging to react to such fast-growing demand. It is also necessary to point out that compared to other countries, the Czechs are of top quality in this field.
What is Aricoma doing to attract employees?
- The most important thing is that the employee works on the projects that are meaningful to them and in a stable and good firm. We are trying to offer them all of that. But we are not too anxious to introduce anything like a four day work week. Thankfully, we have more than enough work.
Let us look further into the future. What can a 5G network do for your business?
- It will speed up the entire communication. Big changes are waiting for us in the car industry, which will start digitalizing very quickly. Cars will be newly able to communicate with one another, and that will require software solutions. Overall, the world will become more interconnected, which is related to a necessary perpetual growth of the importance of cybersecurity.
And will Aricoma strive for IT contracts in the field of 5G networks?
- That is a little too far away, but we will most likely strive for that in the future. We are also interested in automated control, but even there it is too early to suggest anything. Nonetheless, I will allow myself at least a private opinion: if we talk about a vehicle without a steering wheel, then autonomous driving is still a few decades away. I have cars in mind that will drive completely autonomously from Liberec to Brno via our highways under repair or district roads. It still has legislative, social and technological limitations.
You have indicated earlier that Aricoma could direct its steps, in the medium term, to the auction. How far away is it, and how probable is it?
- Aricoma is a long-term project, and one of the most probable scenarios is that within five or more years it will aim for the stock exchange. We will probably list a part of our shares on some respected western auction, for example in New York or London. However, that is all I can say right now - it is not reality yet. It is more like some sort of a vision.
Do you have enough money so far? Are you not thinking about Aricoma issuing bonds?
- Not at the moment. However, if a public subscription of shares was at hand, it is highly likely we would issue bonds in advance. We want the community of investors to become one with us and to build trust with it.
Milan Sameš, (53), Head of Aricoma Group
Milan Sames graduated from the Faculty of Electrical Engineering in Prague. He started his career in the digital industry by founding Enrian Partners, a company that works in the field of digital transformation and innovation. Since 2018, he manages AutoCont. The following year, Mr. Sames took the lead in the Aricoma Group.
Read the original article published on e15.cz here.