SOUTHERN TECH 100
TM number 46: Clearswift Reading-based but with a worldwide reach
An impressive list of clients, world-beating technology, and a new regulatory environment make Clearswift a company to watch closely. Matt Wright sat down with its CEO, Heath Davies, to learn more about its past journey and future direction. ‘We stop the bad stuff getting in and the good stuff getting out’
Technology companies can be hard to pin down without recourse to jargon. Hence Davies’ request upon his arrival for a clear, bite-sized summary of Clearswift’s business model.
Set up in 1982, Clearswift is one of the oldest UK technology companies and is still operating in its Theale location, despite having passed through a succession of different owners in the meantime. Davies was hired in 2012 by the current proprietors – Lyceum Capital – to re-energise the company and establish a platform for growth.
The key challenges upon Davies’ arrival were to focus on specific business segments and to improve profitability so that Clearswift could capitalise upon its world-beating technological know-how.
The first five-year plan achieved
In some respects, certain aspects of Clearswift’s business model have not altered significantly; the company still conducts most of its business through global partners, with around 70% of turnover generated outside the UK whilst roughly the same proportion of its global headcount remains based in the UK.
However, Davies has radically changed other elements, notably its financial structure. “When I joined, 50% of the business was ‘perpetual’ and 50% ‘subscription’. We’ve managed to substantially increase this to c85% subscription in less than five years, which puts us in a fantastic position to expand.”
For the uninitiated (such as myself), Davies explains that ‘perpetual’ business used to be the industry standard, whereby customers would buy software outright and retain it forever. By contrast, ‘subscription’ customers buy an annual license – this includes automatic upgrades during that period with the option to renew the following year. “The subscription model is highly cash-generative and provides excellent forecasting visibility; a feature loved by both owners and potential lenders alike.”
Davies quotes a few figures to illustrate Clearswift’s robust financial health; a gross retention rate over 100% (meaning that customers are renewing with net price rises), a tenure of 12 years (the length of time the average customer remains) and pre-tax profitability of 26% forecast for FY17 (compared to breakeven back in 2011, as measured by EBITDA).
“We now have a modern platform which we can build out organically or by acquisition - these are very exciting times for Clearswift.”
M&A expansion on the cards
Davies details at length the huge investment in technology which underpins the company. To date, Clearswift has only undertaken a couple of small M&A deals in the UK, but now has the opportunity to look more broadly, both in terms of sector and geographical location.
Clearswift’s business plan since 2012 under Davies has been to focus upon the key customer sectors (or ‘verticals’) of government, defence, and finance. Clearswift is able to offer support and guidance from a best practice perspective by filling in the gaps in existing
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businessmag.co.uk THE BUSINESS MAGAZINE – THAMES VALLEY – OCTOBER 2016 Heath Davies
security requirements, a factor which will become extremely topical with the advent of General Data Protection Regulation (GDPR).
GDPR will change the face of the industry
“GDPR will be a rallying call for the industry. Plus, we expect it to provide a huge boost to our business.”
Davies explains that the ultimate sanction for GDPR breaches will be a fine of up to €20m, or up to 4% of worldwide annual turnover. Clearswift has already seen a surge in business as large corporates rush to make themselves compliant, and expects this to continue through to May 2018, with further demand likely once the first corporate has been fined.
Most companies already have a ‘security posture’ but may lack a key GDPR component. Clearswift’s competitive advantage is that it can plug into this existing security posture to achieve GDPR compliance, thereby offering an incremental solution without the need for a complete IT overhaul.
In short, Clearswift is perfectly poised, both internally and externally, to benefit from this brave new world.
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