CFO Michael Cox says that it was near the end of 2022 when the IRIS Software Group began to realize that the guiding philosophy that had motivated and incentivized the UK-based software company to complete 30 acquisitions within 6 years needed an upgrade.
Cox tells us that the IRIS management team was discussing the business cases for yet more acquisitions when the group began to banter about the same deal-making “multiples” that had successfully guided the company prior to the pandemic.
“I was sitting there thinking, ‘Hang on a minute! These multiples would have us potentially spending as much on these businesses as we did pre-COVID—but in fact the cost of debt has doubled,’” recalls Cox, who adds that while IRIS management was certainly aware of the various factors (inflation, a sudden rotation of UK prime ministers, Russia’s war on Ukraine) that had contributed to the UK’s tepid business climate, there was not yet consensus around how to incorporate them and the resulting increased cost of debt into the firm’s business-case decision-making.Read More
In the past, Cox tells us, a typical business-case meeting might have involved a discussion around whether IRIS could continue to invest in an acquired company while still allowing it to achieve new growth—which would make it a worthwhile target. However, it had become clear that such deliberations now needed to consider speed to value as a key contributor to future M&A success.
According to Cox, “We needed to be thinking about how quickly we could generate the value that we wanted to create from these acquisitions.”
While revenue synergies and cross-selling opportunities between IRIS and potential acquisition targets would remain key selling points for any executive advancing the business case for a particular deal, Cox would ask the room to study the prospective acquisition over an 18- to 24-month time span and prod executives for ideas or suggestions.
“I’d ask, ‘How do we generate cross-selling more quickly or invest in this company in a way that makes the business more successful more quickly?,’” remarks Cox, who notes that one trait that might distinguish his post-COVID vs. pre-COVID finance leadership is a willingness to push back.
Says Cox: “Sometimes you’ve got to be that unpopular voice in the room and that sort of glass-half-empty person because it’s important to understand the overall impact of the cost of capital on the value of IRIS as a business.” –Jack Sweeney
“Remember that no one began as an expert in everything. The most important thing is to recognize your areas of inexperience and understanding, and to feel comfortable asking for help or advice when you need it. To truly grow in your profession, you must never lose your curiosity and willingness to learn.” – Michael Cox, CFO, IRIS Software Group.
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CFOTL: Tell us about IRIS … what does this company do, and what are its offerings today?
Cox: We focus on making business processes more efficient, so we are mission-critical software. Our software and services free people up to spend more time on adding value to their business. We’re used not only by accountants and education professionals but also by payroll and HR teams because we allow them to carry out their day-to-day jobs in a way that enables them to focus on the things that they do best.Read More
When the business was started about 45 years ago, it was focused on accountancy in the UK. Since then, we’ve evolved immensely to the point where we’re now relied upon by well over 100,000 customers—primarily SMBs—across 135 countries in accountancy, education, and business. We have a really loyal customer base, with about 80% of our customers having a tenure of over 5 years with us.
We’ve grown not just through retaining these customers and growing organically but also through acquisition. During my time with the business—6 or 7 years— we’ve acquired about 30 different businesses and brought them into the group in all areas.
The types of things that we provide to people include accounts production and tax production for accountancy professionals and payroll software, managed payroll services, and a whole suite of back-office software solutions for schools and educators. At the moment, we’re really focused on taking the business forward in two key areas: our cloud journey and our journey into the Americas.
We currently have underway a huge multiyear investment in cloud infrastructures that will take all of our core accountancy and payroll and HR offerings into the cloud. We’re really trying to disrupt ourselves in order to provide more value to our customers by giving them something that is really futureproof that allows them to work in a hybrid way.
We were very focused on the UK for a long time, but over the past few years we’ve really grown in the U.S. We sell accountancy solutions to CPAs, so this means document management, practice management, these kinds of things. We also provide payroll for accountants, CPAs, and businesses. We currently have 52 of the top 100 CPA firms, plus thousands of others as well. We pay about a million employees across the U.S. and Canada every month through our payroll solutions, so it’s quite exciting that we now have about a quarter of our business based in the U.S. and Canada.
IRIS Software Group | www.irisglobal.com | New York, NY