On May 31, Agilysys sold its Technology Solutions Group business, a unit that comprised 70 percent of its fiscal 2011 revenue, to OnX Enterprise Solutions for about $64 million in cash. The TSG business represented $474.1 million in revenue out of $675.5 million for fiscal 2011 which ended March 31.
Agilysys, based in Cleveland, Ohio, plans to focus on its Retail Solutions Group and Hospitality Solutions Group going forward. Jim Dennedy, Agilysys interim president and CEO, and Curtis Stout, vice president and treasurer, spoke with CRN's Scott Campbell about the future of the company and why the TSG business was sold. The following are excerpts from the conversation.
Agilysys sold the TSG business. What was the reasoning behind that?
Dennedy: It's a capital allocation question. As a public company, our duty and obligation is to efficiently allocate capital to the benefit of shareholders. We look at return on capital, not just for M&A purposes but also for operating expenses, product development, all the SG&A lines. It's really a capital allocation decision.
So basically you weren't getting the return on the capital for TSG that you felt you can get with RSG or HSG, is that accurate?
Dennedy: We can make any business work. We felt we can run a more efficient business with the next dollar of capital allocated with greater return on capital than we could derive out of TSG. When you evaluate the OnX acquisition of that [TSG] business, they felt they could operate it more efficiently. It was an opportunity for us to sell and have both [companies] satisfied.
It seems like there's been an acceleration of consolidation within the VAR segment, particularly the VAR500 segment. CRN's VAR500 list had more new names than ever before. Why do you think that's happening now? Is it being driven more by vendors looking to get tighter with fewer, larger VARs or VARs seeing more efficiencies of scale than before?
Stout: You probably want to talk to Ed Voss, president and CEO of OnX to that. There's certainly a fair amount of consolidation in that space. In general, scale is something that's important to the acquirers in that space as they look to build out a North American footprint.
Tell me about the two segments that Agilysys still plays in, hospitality and retail. What do you see for those businesses going forward? Is Agilysys just focusing on vertical applications for those markets or will you still sell the entire solution including hardware and services too?
Dennedy: The retail business is still 60 percent the reselling or remarketing of products and services, whether you implement POS or other merchant-type solutions, systems, scanners, everything that goes around that. We see increased use of mobility devices. Not just for checkout but for paying too. We have successfully sold solutions that help merchants better enable [mobility solutions] from a customer perspective. We think that trend continues. In hospitality, proprietary software and services is about 50 to 60 percent of [total HSG revenue]. The other part is remarketed [third-party] hardware, software and services.
Regarding mobility, will Agilysys look to expand to offer more mobility devices or strike relationships with carriers or just focus on the solutions that enable an end user's customers to leverage those solutions with their own mobility devices? Dennedy:
We have technology-enabled solutions today that are compatible with [iPod] Touch or iPhone. A merchant can have a credit card reader attachment. A customer perusing merchandise might want to buy this widget. We could sell them that widget and take their credit card payment wirelessly and have it integrated into customers' POS systems. That we do today. We sell complete solutions to the end user. Our customers are merchants or retailers. Do I sell something to [the consumer?] No.
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