TSS Outperforms in the Dutch ICT Market

TSS (Total Specific Solutions) is moving quickly into the top regions of the Dutch ICT league. Though TSS only started in 2008 (capital provided by Strikwerda Investments BV), the company has grown 6% in 2011 to a revenue stream of €196M, and employs over 1600 FTEs. TSS may be less of a household name, its associated companies are. The following 8 companies operate under the TSS flag:

  • PinkRoccade – Local Government
  • PinkRoccade -Healthcare
  • Pharma Partners – Healthcare
  • Co-Maker – Lease Solutions
  • Yonder – Application Innovation
  • Everest – Business Engineering
  • TASS – Technology Solutions
  • KZA – QA and Testing

TSS describes itself as an IT software and services company, however most of its revenue comes from software (49%). Software related services account for 27%, and the remaining part comes from ICT services and consulting revenue (18% and 6% respectively).

In 2011 the company has grown 6% autonomously, and 22.6% if acquisitions are included (PharmaPartners and Planconsult – as part of PinkRoccade Local Government in 2011). With many of the Dutch IT Service firms in heavy weather and software firms showing modest growth, it raises the question how a relative newcomer is able to show this growth rate?

To better understand its potential, it is necessary to look at its history. The company’s growth so far is based on acquisitions of existing companies. PinkRoccade has a long history. Strikwerda’s TAS has been listed on the Dutch Stock Exchange and TASS has been part of the Philips organization until 2007. KZA is a management buy-out from Getronics. The relative newcomer actually has quite some history.

The challenge therefore will not be in the acquisition or expansion phase, TSS has proven its skills in M&A and buy-out strategies. The challenge will be to create a coherent unit out of the separate entities. TSS aims to do exactly just that through a local and specialist approach. The following graph shows how TSS perceives its position in the market, where they are a specialized niche vendor.

Local versus Global – Specialist versus Generic
First of all TSS differentiates itself by taking a local and specialist approach. The TSS companies all have either a specific IT expertise, or a specific market sector they cover. TSS PinkRoccade Healthcare and PharmaPartners serve the first and second line in Dutch healthcare, creating a full service concept for its clients. Local government is covered through PinkRoccade. Everest, Yonder, TASS and KZA all focus on specific IT solutions or IT system integration and software development areas. In that respect, the company can cover all sorts of IT requirements in specific vertical markets or industries.

Commitment & Autonomy
Second, all TSS companies operate autonomously, each of the companies sets its own course, and has a high level of independence in their business operations. M&A, Finance and Marketing & Communications strategy is set on a corporate level. Sales, HR, Partnerships & Alliances, Innovation strategy and Quality & Risk assessments are a company’s own responsibility. TSS companies are triggered to perform and outperform in their market. At the same time, commitment is guaranteed as the CEOs of the separate companies together constitute the TSS board of directors, who in turn set the course for TSS as a whole.

Will this hosanna continue? For the time being, yes.

  • The company still has room to expand and/or acquire. TSS has a strong track record in M&A activity, and for now it appears that there is funds and room to continue this expansion strategy.
  • TSS has a high level of recurring revenue (almost 50%). Its business model is already based on subscription or unit based pricing.
  • TSS has a varied customer base with the largest client not accounting for more than 4% of its revenue.
  • And because of its specialist approach, the various TSS companies have close customer contact, and in many cases can be the trusted advisor many clients are looking for.

In that respect, the TSS companies separately definitely have the capabilities to gain market share and win in a competitive market.

A tough nut to crack though is that TSS will need to prove that it can create a coherent organization, which is able to benefit from each other’s capabilities. Synergy and economies of scale can only be reached if resources can be shared and knowledge can be exchanged. For now we see limited initiatives to create this synergy, and TSS confirms that the specialist approach prevails. In our view, the company does not have enough distinguishing characteristics to succeed in a tough software services market. The lack of a common set of services and solutions, common goals or initiatives creates specialist franchise type of organizations, who are able to operate in solitaire but unable to benefit from shared knowledge, experience and resources. Acquisitions will continue to fuel growth, however, add too many adjacent markets and TSS becomes a collection of companies which are worth more separate than together.

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About Simone de Bruin