With the planned acquisition of IBS OpenSystems by Capita and the earlier acquisition of Northgate by US-buyout firm Kohlberg Kravis Roberts (see the May edition of Housing Technology), are these good for social housing organisations? On the one hand, the new owners of IBS and Northgate are both likely to have greater funds to support new and ongoing product development, which should be good for their existing housing customers. On the other hand, these deals cause uncertainty over future product ‘road maps’ and further limit the number of suppliers in the market, potentially reducing competition and choice.
Bill Loughrey, managing director, IBS OpenSystems, commenting on how IT directors may be feeling uncertain about the future, said, “I think it was inevitable that there would be some consolidation with suppliers in this sector, with so many organisations chasing fewer, albeit larger opportunities. I believe that IT directors in housing associations are looking closely at suppliers to identify which will be around with technologically sound and adaptable solutions that can help them deliver services into the future. Recent speculation has rather unsettled the key decision makers. However, once the situation has settled down and we are in a position to give a clear and strong message about our future strategic direction, I am sure we will benefit from further investment in IBS applications.”
He added, “With fewer suppliers to choose from, consolidation within the sector should make the process of replacing older systems easier. With various mergers and acquisitions taking place among suppliers, it is highly likely that the overall functionality of systems will improve, with ‘best of breed’ applications becoming flavour of the month.”
Further to IBS’s comments, Housing Technology asked a number of housing organisations and technology vendors for their opinion on these deals.
An optimistic future
Richard Sowell, from Orbit Housing Group, said, “If acquisitions bring investment into software suppliers to enhance their products and services then it’s good news. If products are delivered and enhanced to meet the needs of customers, a more responsive approach to business changes is adopted, there’s better quality control and with better service support from suppliers, then we shouldn’t care who owns the business.”
This positive view was shared by Mark Faint, head of IT and facilities, Cross Keys Homes, who hoped to see more complete solutions, saying, “This is quite a shrewd move by Capita. The joining of two companies that can offer a more off-the-shelf, combined offering for the complete management of housing stock will potentially make them a more attractive to the housing sector. Due to the limited resources in the sector, any company which can show an integrated approach to housing management will do better in the current climate of tighter budgets and doing more for less.”
Malcolm Wilson, resources director, RCT Homes, said, “We are a Capita site and, while there is always a concern that fewer suppliers to the sector has the potential to reduce competition, I think that rationalisation of HMS suppliers within the sector was inevitable. Over time, I see the Capita-IBS link-up delivering some benefits to the sector and to RCT Homes, as a wider customer base will provide product development opportunities for both sets of users. I would hope to see the best of each system being adopted across both after a period of time.”
Wait and see
John Stuttard, director, Tribal Consulting took a long-term view, saying, “As we predicted, the number of main housing systems suppliers will reduce when Capita completes the purchase of IBS. However, I don’t think that the number of housing systems will reduce. The most interesting aspect of both acquisitions will be their future product strategy.”
Peter Watson, director of information systems, London & Quadrant, emphasised the strategic importance of IT, and said, “To improve the perceptions held about our sector, we must create even greater financial strength, deliver more operational efficiencies and at the same time further improve our service quality. L&Q has built its own business applications (Arena) because effective IT is critical to achieving these requirements and there has been a lack of suitable off-the-shelf solutions. If these acquisitions mean more investment in their software products then that will be good for the sector, but we will have to wait and see.”
The frequency of product updates concerned Gordon Taylor, head of ICT, Wandle Housing Association, who said, “We use (Capita) Academy – we’re on version 13 and have plugged in more modules than I care to list to increase the functionality of the core system. Although most upgrades do improve functionality, a few of them are simply bug fixes. Will this acquisition by Capita result in IBS pushing out new versions to their users every other month? Maybe, but I hope for those ICT teams concerned, Capita will just settle with what IBS provides already, support it for a few years, and converge it quietly with another release of Academy. If Capita is simply grabbing market penetration and market share, then from the perspective of housing associations, this is going to be bad news and the result will be less choice. If they have genuinely found strength in the IBS product and plan to enhance a single Capita housing system by taking the best bits and banging them together with Academy, then good on them.”
Commenting on the changes caused by consolidation, John Hood, managing director, Civica (Housing & Asset Management), said, “The affordable housing sector is experiencing significant consolidation both from a supplier and housing association perspective. Both suppliers and HAs need to focus on their customers during consolidation to maintain a consistent high level of service delivery.”
Joanna Sedley-Burke, business development director, Sovereign Business Integration, said, “Capita and IBS both offer products that use ageing technology, and it seems likely that these will be replaced in the medium term. As such, Capita has a decision to make – whether to upgrade the existing products and services that its customers are using, or to offer something that is completely new. Either way, both sets of clients should expect a change to their current system in due course. Regarding Northgate, its housing arm has grown over the last few years, largely as a result of consolidation in the social housing market, rather than through new business wins. However, it is tempting to speculate at KKR’s interest in Northgate. Could it really be for the Northgate housing product and will housing form part of KKR’s long term plans?”
She added, “Social landlords in the most difficult position are those about to purchase new software. They have to think carefully about who they are going to choose, and investigate the viability of their preferred supplier and products to ensure their return on investment in the short to medium term. I suspect that there will be a number of very busy contract lawyers.”
Dave Clements, ICT and office services manager, Freebridge Community Housing was more uncertain about the Capita-IBS acquisition, saying, “I can only really comment on the acquisition of IBS by Capita. As far as a deal for the market is concerned, this is a retrograde step as the solutions market appears to be shrinking, especially when you bear in mind that Capita already has a housing management solution (Academy). My concern is whether they will continue to develop the IBS product or try to pair it off with Academy. I doubt very much that they will want to market two competing systems. The market needs a firm statement and reassurance from Capita about future product development plans.”
This view was somewhat shared by Craig Brock, business services manager, Kypera, who said, “These acquisitions are not surprising as the consolidation of suppliers reflects the current commercial reality. We appreciate the commercial logic driving this and believe benefits may be delivered for organisations who both manage a significant number of properties and provide a wide range of services. However, we also believe that this consolidation may be to the detriment of smaller customers.”
The overall view seems to be one of uncertainty, with IBS and Northgate’s customers unsure about the commercial reasons behind the deals and how it will affect their existing systems, while new customers will have a smaller choice of suppliers and probably fewer individual products. While the current dynamics of the social housing sector have given rise to these recent acquisitions, further deals should be expected, particularly if KKR-Northgate and Capita-IBS can really deliver against their promises as this would force other suppliers to improve their services, very likely via acquisitions.