news Just two years after Japanese technology consortium NTT revealed it would purchase the majority of Australian IT services firm Frontline Systems (which also owns hosting company Harbour MSP), the trio have revealed plans to make a substantial number of Australian staff redundant as part of a reorganisation.
NTT, which only has a small Australian presence, bought 70 percent of Frontline in May 2011, in the company’s second major step into the Australian market, following the acquisition of Dimension Data in mid-2010. At the time, Frontline is forecasting sales revenue of $277 million this financial year to June. The company has datacentres, warehousing and sales operations in Brisbane, Sydney, Canberra, Melbourne, Adelaide and Singapore.
“As an organization poised for further growth in the Australian market and beyond, Frontline views the involvement of NTT Com as an investor with tremendous excitement,” said Frontline chief executive and founder Steve Murphy at the time. “The alliance will mean that Frontline is bolstered by NTT Com’s depth of knowledge and resources in networking and communications, while we continue to extend service offerings beyond our core strengths in infrastructure and managed services.”
However, this afternoon Frontline and NTT issued a statement noting that all was not OK two years after the acquisition and that NTT was “consolidating” the operations of Frontline and Harbour MSP.
“A strong pipeline of reinvestment will focus on boosting customer support and services, bringing together staff across the three organisations to provide customers with one-stop solutions for networks, infrastructure, colocation and cloud provisioning,” the statement said. “As a result of the reorganisation, 47 roles across Australia are being made redundant, as engineering, product, sales and back office functions are integrated.”
Steve Murphy, founder and managing director of Frontline, stated: “Looking back at the past 22 years of Frontline’s history I am proud of what we have achieved, particularly over the last 24 months as we’ve started to unlock the real benefits of the combined strengths of NTT Australia, Frontline and Harbour MSP. While today my thoughts and thanks are with the departing teams, at the same time I know we are implementing changes that will create the streamlined ‘one company’ approach our customers want.”
The statement noted that NTT had invested more than $100 million across the three brands over the last two years, with a further $15 million to be reinvested into the trio’s local operations over the next six months, “with a clearly defined product and partnership roadmap”.
Katsumi Nakata, senior vice president of NTT’s Global Business Division, said: “Our unique spread of skills and services across the three businesses allows us to capitalise on the changes taking place across the IT market in Australia, delivering best-in-class, competitive products, services and consultancy. In the coming months we’ll be announcing a range of new, high-value joint ventures that utilise the reach of NTT Com and will continue to expand our footprint here. Australia remains a key growth market for us and we look forward to working closely with the management team.”
According to the statement, the group’s six month transformation includes new premises in the central business districts of Sydney and Melbourne, as well as early-stage planning for a potential deployment of new network and data centre services in Canberra. The group said it had “ambitious expansion plans targeting areas of growing demand such as security”, but will also keep its customer-facing resourcing under close review, with plans to invest further to bring in new roles and skills.
Monte Davis, Chief Operating Officer of Frontline Systems, commented: “It is hard to lose colleagues but the senior leadership team are all focused on this new era in our company’s evolution. The restructure will allow us to scale for success, continuing to invest in infrastructure resale and network services, but also ensuring we’re well-positioned for growing opportunities in enterprise services, right across the deployment, management and maintenance of IT systems in and outside the data centre environment. However, even as we look forward, we are delighted that Frontline founder Steve Murphy has extended his commitment to the organisation, given he has been so critical to its success since the outset.”
opinion/analysis
You know, after almost a decade of reporting on Australia’s technology sector, I’ve seen this story about a billion times. Large foreign-headquartered multinational buys major Australian technology operation with the aim of local expansion. Tries to pump up its operations and win new business. After several years, that isn’t working too well, so the redundancies start. Eventually the local brand is subsumed into the global one and the old local company virtually disappears. We haven’t seen that last step for Frontline just yet, but I’m sure NTT will eventually buy out the rest of the company and pull the trigger.
It’s sad, but it’s life for Australia’s technology sector.
There is one difference here. Normally when a large multinational swoops on an Australian technology company, the local founders take their cash and eventually get out, after the normal buy-out clauses have completed. However, in this case, with NTT not buying the whole company initially, it looks like Frontline founder Steve Murphy has been forced to remain in the company he founded (and still very likely loves) and remediate its current issues for NTT. I note the ominous statement “Frontline founder Steve Murphy has extended his commitment to the organisation”. This very strongly suggests that Japan is not happy with Frontline’s local management and has put the hard word on Murphy to make his baby perform.
Image credit: Frontline Systems
Posting as anon sorry.
I was with Frontline when the buy-out happened. What was going to happen when NTT Communications (a division of NTT which had recently purchased Dimension Data) acquired our business was glaringly obvious to several of us. They were interested in Harbour MSP’s managed DC reach, the rest was just cash-cow.
It’s no surprise that pretty much precisely 2 years after the acquisition they lay off the majority of Frontline staff. I got out ages ago and – despite missing what would have been a hefty redundancy payout – I have no regrets.
Not specific to Frontline but more to your opinion on the pattern happening before, I think there are a lot of government processes and public groupthink that is set back in a 70s-90s period in relation to these buy outs and buy ins. Foreign investment management has evolved such that borders can be leveraged and are no longer a restriction on process. The ACCC and pollies still think along the lines of having the operation “contained” within our borders with the associated employment and the new investor pouring more money in to expand the local operation. But that is rather naive thinking in the modern world. It is now relatively easy to retain an operating shell persona and strip the production guts out to an overseas location.
Even in the mining industry we have seen a similar transition. Where once a local minesite might have a mill (employing locals) process the ore to pure metal before shipping there is a trend where, once acquired by a foreign owner, the process reverts to just shipping the ore off by ship to mills in the home state of the new owner.
I have no solution to what to do with this situation but it certainly seems that there is either no idea it is happening or a “don’t talk about it” approach from government. Ultimately it will bite us though.
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