As Numerix CEO, O'Hanlon Eyes IPO, Acquisitions

Derivatives pricing, analytics and risk management software vendor Numerix is planning to expand its business and product offering within the next couple of years by targeting an initial public offering to fund acquisitions, after creating a corporate development department with the remit of identifying potential takeovers.

The goal of this department -- led by senior vice president Ted Pendleton -- will be to identify "smaller companies that will be easy to consume and will give us a revenue increase straight off the bat, and ... enable us to triple or quadruple their revenue within 12 to 18 months," says Numerix president and chief executive Steve O'Hanlon. "We want acquisitions to be a critical element of this company, which has so far grown organically.... We want to get bigger a lot faster."

The vendor will focus on two key areas for potential acquisitions -- mortgage analytics and services complementary to counterparty risk. "Analytics underlie many of the mission-critical applications in buy-side and sell-side institutions... and we believe our underlying platform is the perfect platform to shift into the risk space with," O'Hanlon says. "Companies that have built their core applications on software-as-a-service or deployed models and require depth of analytics -- these are the kinds of companies we are interested in acquiring. We've built out everything we want to build out...but there are other focused companies, so why build out further when there are companies that can broaden the distribution reach we already have."

O'Hanlon says he realized the need for a dedicated person pursuing the acquisition strategy after an aborted acquisition attempt last year. "I blame myself for not allowing that to happen in the way we wanted, as I was leading that charge... but we needed a person who can give it 110 percent of their time, not me spending 10 percent of my time on it," he says. "We know every company that we would be interested in, and no one knows them better than Ted," who in his previous role as SVP of global business development enlisted a broad network of channel partners, growing revenues via channel partners from three percent of total revenues in 2005 to 50 percent in 2012.

The recent executive and structural changes that followed O'Hanlon's promotion from chief operating officer (IMD, Feb. 8, Feb. 5) were specifically designed to put in place the kind of management structure that would be required by the next phase of the company's growth-namely passing $1 billion in billings, based on a growth scale that assumes fundamental changes to a company's business when it passes specific milestones of $25 million, $100 million and $1 billion.

"This is my seventh startup, so I'm a student of this, and I recognize that when you reach $25 million, you need to refocus, and the people that you have selling may be different-then at $1 billion, you need a different structure," O'Hanlon says. "We leaped through the $25 million mark some time ago without any issues, and we're zeroing in on $100 million in the next couple of years -- and now we have the people aligned for breaking through the $100 million mark."

Once the vendor reaches $100 million in revenues, "the goal would be a public offering... to bring liquidity to our investors, and to provide the ability to go out and acquire companies that fill gaps in our lineup," O'Hanlon says. "We won't be doing anything in the next 60 to 90 days. Ted is taking this over and will be working with Satyam [chief strategy officer Satyam Kancharla]... to develop a plan for the next five years -- and a core part of that will be an acquisition strategy. We will have a strategy document outlining what market segments we want to go after."

Any acquisitions will be absorbed into the new structure that Numerix has just put in place. "We are moving more to a single-stack approach... and any acquisitions will be ring-fenced into these groups, and their products will be put into one of the silos within our analytic platform," O'Hanlon says, adding that this will avoid any jostling for position between existing staff and the senior management of any acquisition. "They will commit to being part of one of our silos. Here, egos get checked at the door."