An Ontario firm has sold the remaining part of its IT business to another which plans on rapidly expanding.
In a deal which closed on Friday, Thinkpath Inc. turned over its IT contractor business to Thornhill, Ont.-based TrekLogic Technologies Inc. for $260,000 in cash and notes. Thinkpath founder Declan French said he wishes to focus solely on his engineering business.
“”We’ve stabilized now. We’ve spent a year and a half doing a lot of downsizing. We went from 18 offices down to six — from 600 employees down to 180,”” he said. The company recently moved its Canadian headquarters from Toronto to Brampton, Ont., and will focus on automotive and defence design engineering contracts. Its remaining five offices are located in the U.S.
“”We just found it too difficult to try and grow both businesses under pretty tough conditions. The engineering business has better margins than the IT business these days,”” he said.
Thinkpath’s 33 contractors now work for Brainhunter.com, a subsidiary of TrekLogic. “”(Thinkpath) had a small IT business, which was really a distraction because it wasn’t part of their core client base or their strategy. It chewed up a lot of working capital — IT business does that — and distracted him from his other business,”” said TrekLogic chairman and CEO John McKimm.
“”He has an opportunity to get his working capital back out as well as get a decent price for the business. For me, it’s our core business. He had 33 contractors, and we deal with a lot of the same clients, so for us it was a good deal. It increased our presence with clients.””
Brainhunter.com sells its contractor services to companies like the Bank of Montreal. The contractors are paid an hourly wage by Brainhunter, which in turn bills the customer for those services.
“”I already do $47 million in this space, so I just added another $3 million in sales with clients I already deal with. That just puts me higher up the food chain with individual clients. . . . It’s easy enough for us to handle the transition. We can integrate a business like this in 48 hours.”” said McKimm.
Brainhunter also received one full-time employee through the Thinkpath deal — Declan French’s son Tony, who helped start the company back in 1995. Tony French looked after the IT contractor side of the business for Thinkpath and is now vice-president of business development for Brainhunter.
It makes sense for his father to concentrate on his engineering business, he said. “”We were always arguing over where the resources would be spent, what was our focus and how to describe what we did. Thinkpath itself was really too small to have separate business units at its current state.””
He said the contractors will ulitimately benefit from the transition. “”We’re able to offer them more professional liability insurance coverage — things like workman’s comp. . . . Brainhunter, being a much bigger entity, has the means and the capital to do that.””
Contractors typically work on six-month or one-year contracts for clients, he added, but the best ones can stretch that time almost indefinitely. “”A good contractor will get the reputation for certain things. If they’ve played a key role in terms of infrastructure at a bank, when that bank adds another division with the same sort of infrastructure they’ll be the right person to be involved with that,”” he said.
Tony French said that Thinkpath is just one of many stops for TrekLogic on the acquisition trail. The firm now has about 200 contractors, but plans to staff up to 600 by the end of the year, mostly through acquisition. He acknowledged that IT services is a tough sell today, but anticipates that the market will pick up next year.
TrekLogic has grown steadily since it was founded two years ago. McKimm started the company under the name Red Lantern Corp. after he sold Daedalian, in which he was the majority shareholder, to Telus Corp. in May 2001. It was renamed TrekLogic Technologies Inc. following the acquisition of TrekLogic Inc. last year. McKimm bought Brainhunter earlier this year.