Original Article and Content From Document Boss
The Document & Records Management Outsourced services market is experiencing a new round of consolidation worldwide, not only by established players in the market but by new entrants from both Supply & Logistics & Facilities Management service providers. While more and more documents are “digitally born” and, with the advent of Cloud computing and the associated uptake of “Big Data digital data storage, there is still significant demand for the outsourcing of physical records to manage the document lifecycle from storage, back file or ad hoc document capture (via scanning) to secure destruction. There have been predictions of the end of the paperless office since the early ‘80’s and yet, the mountain of physical records being retained is still substantial.
Many traditional Records Management Service providers are now also adding electronic document hosting to offer a full service offering. This is resulting in a new wave of mergers & acquisitions, both of document storage companies & scanning service businesses. Size, scale, geographic reach and service breadth are key differentiators in an increasingly competitive market.
Document Boss speaks with Charles Skinner, CEO of Restore to give some insights into the dynamics of this market and how they have successfully expanded their capabilities in this area, largely via acquisition, to become one of the leading players in this sector in the UK
Q: Could you give us a brief company history, including date of inception, original ethos etc?
A: Our history as a public company dates back to 2005, when Mavinwood plc was floated on the Alternative Investment Market as an acquisition vehicle, focused on the support services sector. Mavinwood’s first move was to buy Restore, then, a privately-owned document storage business which principally served the legal services profession and had an annual turnover of £900,000. Mavinwood subsequently bought an insurance claims business, which specialised in construction-related claims. Fast forward a few years and Mavinwood went into the credit crunch with uncomfortably high costs and too much debt – and the share price collapsed. I was appointed in 2009 as part of a new management team and our immediate priority was to put the company on a sound, financial footing. There was a period of time when we came extremely close to insolvency. Once we were out of immediate danger, we began to implement our strategy of focusing solely on office services –part of this process was to rename the company “Restore plc” after our core records management business.
Q: What attracted you to this niche?
A: I had long harboured an ambition to run a records management business. I appreciate that storing hard-copy documents in cardboard boxes is probably likely to strike my peers in wholly digital document businesses as antediluvian, but I’d previously been CEO of two quoted, support services companies and the sheer strength of the business model in records management had always appealed to me.
First and foremost, you have a strong element of recurring revenues. The volume of documents sent to you for storage doesn’t tend to vary with the economic climate – and we have found that historically, our organic growth has been at around 5% per annum: simply from existing customers sending more boxes to us from the additional volume of documents they generate. In fact, in the last six months, that organic growth figure has been running at closer to 7% to 8%. But also, our customers tend to stay with us – in large part, because it is neither desirable nor practical for customers to move suppliers. There is considerable cost and logistics involved in uplifting boxes from one supplier and moving them to another. And, assuming you get your property costs right, you have relatively low overheads. In our case, we have a large, underground, freehold site in Wiltshire and we have been able to secure lease agreements for tertiary properties at times when rental rates have been weak. The combination of a highly predictable revenue stream and low fixed costs engenders very strong earnings potential.
Q: Why do acquisitions feature so prominently in your strategy?
A: The downside of customers tending to stay with their existing records management supplier is that it can be difficult to win business from your rivals. So Restore’s strategy in records management has been one of consolidation – a “buy-and-build” model similar to that I pursued at Brandon Hire, the tool hire business, where we expanded the network from 10 to 170 branches in a matter of years.
First, through acquisition we have steadily built out our network so that we have a truly national presence. Since September 2010 we have completed nine bolt-on acquisitions in records management and, from our original footprint of five locations solely in the South East, we now have 28 sites from Glasgow to Cornwall. That has meant that when a customer such as an accountancy firm is looking to consolidate its suppliers from a dozen or more to just one, we have the national coverage that enables us to win work.
Secondly, the “buy and build” approach clearly brings with it powerful economies of scale and has allowed us to move our acquired boxes in such a way that our storage capacity is most effectively utilised post-acquisition. The business of uplifting boxes to their most suitable location post-acquisition is inevitably complex, time-consuming and costly – but once they are in the right location they tend to stay put for years and, in many cases, decades.
Q: What are your principal vertical sectors?
A: We still have a strong presence in serving the legal services profession – both reflecting Restore’s roots as well as the fact that we are among the biggest buyers of records management services. In addition, we have a substantial customer base in life and non-life insurance, pharmaceuticals, industrial companies and the public sector, mostly local authorities and hospital trusts.
Q: Where do you position Restore plc in the market – now and looking to the future?
A: We set out with the aim of becoming one of the largest players in UK records management with a truly national presence and we have made very good progress on that front. From around £900,000 in 2005 our turnover solely in records management grew to £21 million in 2012. And in March of this year, we passed a significant milestone with the acquisition of File & Data from Office Team, which brought an additional £3.2 million of revenue and took us to number two position in the UK market – behind Iron Mountain. That means we have gone from number nine in the UK to number two in the space of four years.
In addition to our strategy of “deepening” – increasing our market share in our existing activity of records management – we have also pursued a strategy of “broadening”: of adding additional services which complement our existing activities. We have targeted activities which have a degree of operational complexity which enables good margins to be achieved and that provide scope for cross-selling the other services we offer. And crucially, we have targeted activities that have a similar channel to market to records management – typically, through our customers’ facilities managers. In that way, we have expanded into secure document shredding and recycling, office relocation – where we are now number one in the UK, following our acquisition of Harrow Green in March 2012 – IT relocation, document scanning and, most recently, in April this year, into IT asset disposal with the acquisition of IT Efficient, which provides secure data destruction and hardware disposal services for computer equipment, and has a strong presence in the financial services sector, with customers that include five of the world’s leading investment banks.
There is a life-cycle at work. We store a customer’s hard copy documents; we scan them if they would like them converted from hard copy to a digital format and we securely destroy documents when they are no longer required. Furthermore, the business of moving office inevitably leads to a clear-out in which some documents are deemed no longer worth keeping and are therefore, earmarked for shredding, some documents are moved into off-site storage, computer equipment becomes surplus to requirements and is recycled or destroyed. So there are a lot of potential synergies at play.
We have also invested in a comprehensive CRM system so that we can instantly identify which services we are selling to a particular client and to see where there are opportunities – and thereby pitch for the shredding business of a records management customer, for example, or the IT asset disposal business of an office relocation customer.
As an aside, I should clarify that we have no intention of expanding outside the UK. We know the market here well and there is still plenty of room for growth. In records management, we think the UK market is worth between £500 million and £600 million. And we have a very effective system of monitoring potential, further acquisition opportunities. I think I can say quite confidently that there is no sizeable records management business in the UK that we don’t know about.
Q: What have been the principal changes in the market over the past 2-3 years?
A: There has been an increasing move towards outsourcing – particularly in the public sector. With the austerity-enforced budget cuts in the public sector, which we have witnessed since 2009 and 2010 in particular, a lot of organisations began asking why they were storing boxes on their premises rather than off-site. Why build new hospital space when you have an entire floor of an existing hospital that is occupied by cardboard boxes and could be put to better use as patient wards or operating theatres?
We estimate that roughly one-quarter of the £500 million to £600 million UK records management market is in the public sector – but that only half of that is currently vended. So we expect the impetus towards outsourcing to continue on efficiency grounds alone.
The other obvious, broader change has been the shift towards cloud computing – the remote storage of data accessible via the internet. But, whereas this is often talked about as a threat to traditional, hard copy, document storage, we don’t see it that way – nor indeed, have we seen any sign of its affecting our volumes. Thirty years ago, 100% of data ended up on paper, whereas now, only a small percentage of data might end up on paper, yet the amount of data as a whole, has increased exponentially – so that a small percentage of the whole is still very large. So, the issue of cloud computing is more one of perception than reality as far as we are concerned – and one inevitably, we are asked a lot of questions about.
Q: What trends do you anticipate over the next 3-5 years?
A: We expect to carry on delivering strong growth – although I would hesitate to go as far as predicting that we are going to overtake Iron Mountain as number one in UK records management any time soon. We estimate that they are still something like 8 or 9 times our size in terms of revenues.
As for our areas of activity, in records management we expect that documents that we currently store will remain with us for as long as they need to be kept – for the simple reason that backscanning is too expensive and complex. We expect some continuing, organic growth from existing customers at around the long-term historic trend rate of 5%. As mentioned previously, we are anticipating greater use of external, hard copy archiving by the public sector and better use of the management information supplied by us to our customers to facilitate clearer destruction policies for their documents.
On the end-of-life side of our activities, we expect significant growth in our IT asset disposal business with increased focus from our customers on security issues and a focus on their own corporate, social responsibility agendas. And we expect steady growth in shredding as the number of suppliers reduces and the less reputable suppliers, who are unable to provide their customers with a full audit trail are steadily squeezed out of the market. We expect limited growth in scanning, mainly from more specialist projects, particularly from organisations that are looking to monetise their existing archives. Equally, we expect limited growth in core office relocation, but steady growth in related areas such as furniture recycling, which is a relatively immature market. Finally, we expect some growth in the IT relocation market – which we serve through our Relocom business – as customers change their configuration of their current hardware to reflect the impact of cloud computing.
But as far as the wider impact of cloud computing on our business is concerned, that is about it.
Document Boss: Thank you for taking the time to share your insights with us, Charles; it has been most interesting.
Original Article: http://www.documentboss.com/blog/business-leader-interview-charles-skinner-ceo-restore-plc