I met with Vin Murria, one of the shrewder dealmakers on the London software scene, again this month. She is an old friend to SCSW. The last time I met her was probably 10 years ago when she was still running her previous company, Advanced Computer Software (then in her late forties), with the remit of building a business in primary care - software systems for those at the frontline such as doctors, pharmacists and nurses.
There is never much hubris with Murria. I still remember her driving me in her not-so-new green Datsun to Carluccio’s for lunch and me remarking on her modest choice of vehicle given the huge success she had already enjoyed in the City. The time before, I had met her at Elderstreet VC in Buckingham Palace Road, where she was a partner. That day she told me how her father had died young. She had been brought up over a shop with her siblings by her mother in the West Midlands. From there she had gone on to study Computer Science at university and then cut her teeth at Kewill Systems, where for 16 years she headed a program of European acquisitions.
After that, Murria went on to establish Computer Software Group, which supplied accounting, back office and document management systems to the UK legal sector and also CRM software for the charity sector before carrying out a management buy out and selling it; then, subsequently, she moved on to establish Advanced Computer Software. Eventually, the latter (which bought bits of the former) was sold to Vista Private Equity for £763m. Shareholders did very well out of the deal. SCSW readers booked a 724% gain in six years and we also bagged 88% on the previous vehicle, Computer Software Group.
Genesis as a cash shell
I am confident that anyone who invests in her latest AIM-listed vehicle, AdvancedAdvT, is going to enjoy just as profitable an investment. The reason I have so little doubt is because Murria, now 62, is following a pretty well-established Murria-blueprint - to buy and build a software business with mission-critical products that result in high client retention, lots of recurring revenue and predictable cash flow. Typically across all her past endeavours she has targeted fragmented industries with opportunities for consolidation.
AdvancedAdvT was a former cash “shell” (effectively dormant) that had been floated in 2020 by fund manager Marwyn Investments. Marwyn had put up virtually all of the £0.7m raised and controlled most of the equity. It was, therefore, easy for it to push through a number of changes a year later in 2021, including giving a new executive team control and Murria became chair at the time. Simultaneously with Murria's appointment, the company changed its name and announced a new strategy “to acquire software businesses in sectors characterized by long-term trends in AI, digital transformation, data analytics and business intelligence.”
A very unusual performance ratchet was also put in place (details of which are in the prospectus on the company’s website), which will give Murria, Marwyn and other management 20% of any “shareholder value” crystallized from the float price of 100p by the ultimate sale of the company. So if the company were to be sold at 200p, they receive 20p of the uplift. A similar blueprint had been used at her previous vehicle, Advanced Computer Software Group. But that said, as part of the fund raise for £128.5m, both the sponsor, Marwyn, and Murria did stump up serious hard cash, with each investing £17.5m, giving them a 15.4% and 13.1% holding, respectively. Business Growth Fund also became a cornerstone investor, investing £20m for 15%.
Initial opportune bid for M&C Saatchi
As Murria says, things didn’t take off immediately; valuations for software businesses were just too frothy at the time. Instead there was a bit of an opportunistic tangent when ADVT acquired 12m shares in advertising company M&C Saatchi (SAA; 181p) for £24m in January ‘22, where Murria was a non executive director and also personally owned 15.3m shares.
Combined, the 27.3m shares that Murria and ADVT owned represented a 23% stake, and this was used as a launchpad for a bid, the final one valuing M&C Saatchi at £250m. “I obviously knew the business well; alongside the advertising agency, which was losing money in a cyclical downturn, it also had a very successful digital business providing consultancy and analytics with lots of technology that was making money. The business was valued at £130m by the market versus £1.3bn for rival Next15,” says Murria.
Murria’s bid, however, failed, with acceptances of only 37% as M&C gained some swagger from improved trading and since then, another female titan has been installed on its board, Zillah Byng-Thorne, the former CEO of Future (FUTR; 623p). Next15 even threw a bid in but that too failed as Murria voted against it.
As it stands, ADVT still owns 12m M&C shares, which are currently worth £21.7m, and still has £82.2m of the cash it had raised.
Buys five businesses from Capita for £33m
But with tech valuations now having receded, the “Queen of tech” Murria has returned to her roots in software, and ADVT has recently concluded its first acquisition of five software businesses from Capita (CPI; 13p) for approximately £33m cash. As I am learning, there were two other interested buyers wanting these assets at the time but they were overseas private equity firms and circumscribed in their ability to act fast enough for Capita, which had promised its own investors it would sell the five businesses as a single job lot.
When building up her previous businesses, Murria has often targeted retirement sales. She has previously recounted to me, “You get an entrepreneur who might have had great success building up their software business but they’ve paid the school fees, paid the mortgage and then it often becomes a bit of a lifestyle and they are looking for an exit. In most cases, being run by absent managers as lifestyle businesses leaves them neglected and going nowhere fast.” Capita’s situation was in some ways similar. It had been providing a range of services for the NHS, including support services for health providers and commissioners, clinical performance management services, finance and accounting solutions and health informatics services. But since 2017, the group had become too heavily indebted, which meant it had to sell several businesses to reduce debt. Covid then came along and several software businesses were put into a holding state to be disposed of; management weren’t incentivised on new business, and consultant utilisation also fell. This is why Murria paid a low price.
Paid 5.5x EBITDA
Having bought the five businesses, one loss-maker, Synaptic, which provided software for IFAs, was deemed non-core and has since been sold for £3.5m, leaving ADVT with four remaining software businesses. In their last reported year (2022), these businesses generated sales of £32.4m (with approximately 74% of the annual revenue recurring (ARR) or coming from Software-as-a-Service) and £5.3m in EBITDA. The price paid of just 5.5x EBITDA looks like a steal.
But Murria obviously knows what businesses of this ilk are capable of achieving and what needs to be done to fix them. As she notes, “EBITDA margin was 16% but for a business of this type investors should expect it to be 25-30%.” She adds some colour to this by adding, “Thankfully, three of the management team have now retired, shaving £0.5m off the wage bill. I never knew what they were supposed to be doing anyway and so I have used the savings there to revamp the team and have persuaded new people to join me once again from my past company. Many of them are there on a one or two-day-a-week basis.”
As she has worked with most of her team before, she thinks ADVT will hit the ground running. She says there have already been early wins. One of the new appointments has started trawling every customer contract and checking for “compliance” i.e are users paying for the services they actually consume - for example, do they have a license for 35 users but 50 are using it? Murria says ensuring proper adherence to contract terms could add £1m to ARR.
Clinical benchmarking
So what are the first businesses? As I am learning, there are basically two elements to the Capita acquisition. Bigger of the two is a Business Solutions & Healthcare Compliance side, which has sales of £22.1m and EBITDA of £3.4m.
Here, Centros is an accounting back office system for use by healthcare and other public sector organisations. Its software products include accounting and budgeting, procurement, receivables, payables and project accounting, and the current customer base is said to include 45 NHS trusts and several other public sector organisations. Such systems are typically used by a finance director and Murria says the reason for buying this is simple: the nature of its activities means it provides direct engagement with senior decision makers, and via acquisitions she plans to fill the “white space” with the addition of new modules that can be sold to them (e.g. document management, payroll, HR).
The other divisional software activity is perhaps more interesting. CHKS is a leading provider of healthcare intelligence and benchmarking software to address the governance, risk and compliance needs of its healthcare customers. It is being used by 150 public, health and private organisations.
Jeremy Hunt’s latest Budget is on TV in the background as I write, and owning CHKS seems to be coming at such a perfect socio and political time for ADVT. I can recall that a few years ago, there was The Bristol Royal Infirmary inquiry, which was set up to investigate the deaths of 29 babies. The report called for a new culture of “openness about clinical performance,” allowing patients to access information about the relative performance of hospitals, services and consultant units and the creation of national standards of care, both in clinical care and for hospitals.
The Chief Executive of a Trust these days might, for example, feel a need to provide assurance of high-quality safe services for patients and value for money for commissioners. Accessing this data and making sense of it is challenging. This is where CHKS comes in. Its system ingests 2.5 billion patient data records, which are supplied on an anonymised basis from the Department of Health, individual trusts and doctors. This data is ingested by sophisticated tools alongside other variables such as age, sex, length of hospital stay, method of admission and case mix, and enables healthcare organisations to better understand potential quality performance issues and identify inefficiencies within a health economy.
As Murria notes, there are others also doing this. For instance, a business I have come across called Doctor Fosters, which has been set up by a team of journalists, is very similar. But Murria aims to do things better; for example, by using AI, Murria plans to build a new platform to provide data that the chief executive of an NHS Trust might need to allow him or her to investigate risk-adjusted quality, performance, patient safety and clinical outcomes data (including mortality), to benchmark against other healthcare organisations, and identify areas for improvement and efficiency savings. This data can, for instance, then be used to identify outlier hospitals that are particularly above or below average.
As well as NHS hospital benchmarking to compare how one hospital is performing versus another, CHKS can also be used as an aid to support accreditation and as a compliance and control mechanism eg. before a check by the CQC (Care Quality Commission), the independent regulator of health and social care, a care home operator might want to use such data to compare against their actual own service level, to ensure its data meets adequate levels to pass the assessment.
ADVT’s latest cloud-based system of this emerged 18 months ago after an £8m spend but under Capita, only 43 customers moved across. Murria intends to accelerate this and says 25-30 more will transfer over this year and a similar number next year. Not only does moving them to a hosted environment immediately produce a 30% ARR uplift but she can then add new services for users to plug in such as business intelligence. To better understand the opportunity of what customers might want, she highlights that when she did a user conference (the first for three years), 144 of the 150 customers showed up, demonstrating just how vital they saw the software was for their business. Her plan is to make small acquisitions at, say, £3m-£5m apiece to bring new functionality into the fold.
Human Capital Management side
One such cross-selling opportunity already exists within the Human Capital Management (HCM) software acquired, which is the other side of the business. This comprises two workforce management systems, Retain and WFM.
As Murria explains, there is an opportunity to bundle some of these in with the Business Solutions & Healthcare Compliance side - such cross selling was never undertaken by Capita. As she explains, the present HCM solutions integrate with leading enterprise resource planning systems and are trusted by some of the largest global consultancies to deliver effective management of resources; optimise utilisation and productivity; and enable efficient cost management, financial and staff planning tasks. For instance, PWC uses the Retain system across 477,000 users, E&Y across 270,000, another for 400,000, and so on. Murria says there are 2.4m users in all. “If you have a consultant being paid £300,000, you want to ensure his work is being correctly billed and scheduled,” she adds. Despite these firms managing such expensive talent using the system, Murria is pretty forthright in saying that these customers aren’t paying anything near what they should given the value they receive from it. She adds that some users have historically been paying as little as £1 per user per month and there is scope to lift this by 400%-500%.
Alongside Retain, the other owned software is WFM. This is a time and attendance system for lower paid, high volume workers with multiple shift patterns, so it needs to cater for complex overtime rules, varied shift premiums and other pay adjustments. The software handles highly complex payroll calculations whilst its comprehensive time and attendance and access control solutions provide real-time employee tracking with tangible efficiency benefits.
Murria’s plan is to change the year end to February - most public sector year ends are March and this reduces the risk of contract slippage from one year to the next. ADVT has therefore just reported interims for the 6 months to end December. There will be an 8 month (shortened) full year statement in May. Nobody has written anything on this and the house broker has yet to initiate coverage. I am a buyer before the thundering herd arrives.
