Esteem looks to grow after holding its nerve

The collapse of Lehman Brothers in 2008 brought chaos that still makes the blood run cold.

Banks were bailed out, government budgets were slashed, and the belief that we’d said goodbye to the days of “boom and bust” was shown to be a delusion. The turmoil affected well-run businesses that had enjoyed rapid growth.

It presented challenges for firms like Esteem Systems, which had been one of the UK’s fastest growing IT services companies for much of the noughties. Esteem had built up a formidable reputation, working with some of the world’s leading IT names, including Sun Microsystems.

Then the recession struck. Public sector work was squeezed, and companies like Sun Microsystems were forced to shed thousands of jobs as revenues plummeted.

But the private equity-backed team at Esteem, led by industry veteran Joe Connolly, held its nerve.

Today, the Wetherby-based firm is on the hunt for acquisitions after securing a refinancing deal with Lloyds Bank. Esteem aims to flourish by providing a full package of contract managed IT services.

So if you want to build a private cloud infrastructure for your local council, or create a virtual desktop for your university, Esteem should be able to help. Long-running contracts have helped to increase the value of the business during uncertain times, according to Mr Connolly.

The organisations that run smoothly with help from Esteem include Great Ormond Street hospital, which has been a client for a decade. Other clients includes Leeds Teaching Hospitals, the law firm Irwin Mitchell and a number of universities.

The affable Mr Connolly first gained an insight into the importance of customer service in his native Ireland back in the 1970s, when computers resembled tower blocks. He also got a chance to watch economics in action on the doorsteps of Dublin.

“When I left school I wanted to go to university,’’ he recalled. “There were no grants in Ireland at that time, so I got a job as a milkman for four years. It made you focus on finishing on time because you had to get to the lectures.”

After graduating in economics from Trinity College in Dublin, he moved into the IT sector with IBM in Ireland, and soon became a respected player in a sector that grew rapidly in the early 1990s. He led the management buyout (MBO) of Granada TV’s computer department in 1997 for £72m.

Two years later, he was a member of the team that floated the business for a cool £265m. In 2004, Mr Connolly led the MBO of Esteem, with backing from private equity group Primary. In the years before he joined Esteem, Mr Connolly had been making a pleasant living in the pub trade, after a frenetic period of corporate activity.

“I took a couple of years off, and I’m not the sort of person who likes to sit around, so I bought three pubs in the South of England,’’ he said.

“They were quite successful. I wanted to get back into the IT business, and my wife would have probably divorced me if I’d kept having pubs. I knocked on a few doors, and met Richard Doyle (Esteem’s founder). I hit it off with him and thought he’d made a great business.”

Luckily, Mr Doyle was thinking about exiting the business. Mr Doyle had established Esteem in 1985, when the IT sector was in its infancy, and he wanted to sell it to a management team that shared his beliefs.

“It was probably the right time for him, and the right time for me,’’ said Mr Connolly. “I saw the opportunity with Esteem.”

More than a decade later, Primary and Mr Connolly are still around, which is a powerful rebuff to those who believe private equity firms are only interested in making a fast buck, and a speedy exit.

“We have found that Primary is an excellent partner,’’ said Mr Connolly. “They don’t just look at a quick ‘in and out’ – they have a long-term strategy for the business.”

This measured approach was vital after the financial collapse of 2008, when the economic world was turned upside down,

“We put together a strategy for the future with our private equity partners,” said Mr Connolly. “They understood what the issues were and didn’t have any knee-jerk reactions.”

Under Primary’s ownership, the company has made two key acquisitions – Access Computing and SiRViS – which have increased the company’s scale and its number of products. The development of the managed service side of the business has delivered recurring revenues that support sustainable growth.

In the last financial year, Esteem saw its turnover increase by three per cent to £34.7m, while its EBITDA (earnings before interest, taxation, depreciation and amortisation) rose by 14 per cent to £4m.

This growth has also supported job creation. Today, the company employs 225 staff, compared with 100 in 2004. Esteem has been chosen as a partner on the new NHS IT procurement framework, and, following the refinancing with Lloyds, Mr Connolly has his sights set on strategic acquisitions.

“One of the great things about Wetherby is the quality of staff,” said Mr Connolly. “Over 50 per cent of them have been with us more than 10 years. For IT that’s exceptional.”

Outside work his twin passions are horse racing – “I’ve had a few horses over the years, with three different trainers” – and following his beloved Crystal Palace. In business, he operates by a simple set of rules.

“Do the most difficult things first,” he said. “Also, have people you can trust, and delegate to them. That is something I’ve been really lucky with.”