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INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | JANUARY 27, 2004
The King of Rollups Meet Michael Mullarkey, who has built a thriving outfit by picking through the debris of the dot-com bomb Was it really just a few short years ago that so many otherwise sensible people were pointing to the soaring valuations of dot-com stocks and insisting that the old rules no longer applied? Buzz, we were told, carried more weight than profits, business plans became exercises in unbridled optimism, and quaint concepts like return on investment were deemed as out of date as slide rules. It was a heck of a party while it lasted -- and, as with any orgy of excess, the hangover was a killer. Not everyone was nursing a sore head, however. Take Michael Mullarkey, for instance, a former Sony (SNY ) vice-president, who surveyed the struggling startups left high and dry by the ebbing tide of venture capital and decided that quite a few of the outfits gasping for air still had something to offer. His focus was on those with proprietary human-resources applications, which could be scooped up for pennies on the dollar. That's what he has been doing ever since, adding enterprise-software and workforce-management players like 6figurejobs.com, Icarian, Ecruiter, Xylo, Techengine to the expanding portfolio of his Ottawa-based small-cap outfit, Workstream (WSTM ), where he is chairman and CEO. When Mullarkey spoke recently with BusinessWeek Online's Roger Franklin, he was in a characteristically upbeat mood, preaching the bargain-hunter's gospel as he explained what happens after he has come knocking at an ailing startup's door. Edited excerpts of their conversation follow: Q: How many acquisitions is it now? A: Seven over the last 23 months. I looked at the business cycle when I got into this and said, "How how long can people run with business models that generates $1 but need $5 to do so?" Turns out, it took longer than I thought it would for reality to strike, but from 2000 to 2002, the capital markets were compressed and there wasn't the access to capital these firms needed. That was Workstream's opportunity to step in and buy assets, ones we believe would be valuable over the long term. The trick was to look at a company and say, "Here's a good software product, but the business model isn't working." Then you act. Q: You've been paying pennies on the dollar for outfits like Icarian and jobs.com. A: Correct. I've put about $4 million or $5 million dollars of my own money into Workstream -- so you can be sure I believe in buying the right company at the right time. And I don't like to overpay, which is what we saw happening in the late '90's. Our acquisition strategy has been to look for companies that we believe have a product that will add value to Workstream -- products that we pay a fair market price to acquire, and that we can expand. For example, if I buy a compensation [software] product, can I take it to my next performance-management customer? Q: What happens when you make an acquisition? Does the former management stay on? A: At 5 out of the 7 companies that we purchased, there's nothing left of them. The main reason is that most of what they have to offer becomes redundant -- our management team has been able to operate these businesses better, we have a consolidated sales-and-marketing force, and a consolidated R&D effort up in Canada. Q: Who are you clients? A: Citigroup (C ), Home Depot (HD ), Nordstrom (JWN ), Charles Schwab (SCH ) -- I can keep going if you want. Whether you're hiring somebody or firing somebody, or you want to put in a performance-management system to monitor their performance, we have an application that can get you up and running in a couple of weeks. Q: How has the return of growth and the general improvement in the economy affected Workstream? A: We saw a tremendous uptake in business in [December], more than in the first 12 months of the year, and I think two things are driving that: First, there are some capital expenditures going on. Companies have been so dry for so long, two to three years, that some of their infrastructure is deteriorating. So they have to invest, there's no other choice. And then there are corporate profits, which are increasing...so, overall, there's a tremendous need to reinvest that is emerging. The second factor is that almost 400,000 jobs were created in four months, and unemployment has gone down a fraction of a percent. For us, given out human-resources-management software, whether the economy goes up or goes down is sort of beside the point. Fact is, corporations are always going to be hiring people or firing people, and both involve HR and the HR products we provide. Q: What about your own employment history. When did you leave Sony? A: In 1996. Then I went back briefly, at the end of 2000, to help them out for a little bit. I can tell you, to this day, I still love that company, but thank God I didn't get a company tattoo. Sony is a fantastic company, and you learn great things, and I have great admiration for what they've done, and how they built a wonderful corporation. But, I realized that what I learned -- the Sony ability to innovate, and the ability to treat people well, and to really provide value -- I could apply in my own company. That philosophy is what makes people attracted to come work for us, and also what makes Workstream attractive for corporate customers. Q: What the advantages to being headquartered in Canada? A: There's a very good Canadian workforce, so, where everyone else is talking about outsourcing IT to India and China, I've looked at the numbers and Canada comes off as a great deal. In India, the average IT cost per hour is anywhere from $11 to $12 dollars, but it's only $16-$17 dollars US up in Canada. Yes, there's a difference in those numbers, but there's a difference in convenience, too. I can fly out of New York be in our data center in a couple of hours, instead of 19 hours for India. That a big, big plus. 
BW MALL
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