There’s no doubt that the IT landscape is shifting but it is the speed at which change is happening that takes your breath away. With the advent of cloud hosting, mobile apps and ever-more complex enterprise software there are billions of bytes of digital data today that we didn’t have even a year ago, and future growth will be exponential, as we explained in last month’s piece on cyber security (see Sector Report, Shares, 15 May). Even an expert like Gavin Lyons, chief executive officer (CEO) of cyber security specialist Accumuli (ACM:AIM) is bowled over, as he explained when we caught up for chat in London last week. ‘The way that this has escalated, it’s gone beyond everybody’s wildest expectations.’

In what was a piece of interesting timing, I met Lyons just hours after the latest hacking attack controversy broke, when online marketplace giant eBay (EBAY:NDQ) revealed that cyber thieves had stolen personal data from 145 million of its users. Where hacking was once about ‘bragging rights, showing that you could take down a network, now it’s becoming a money machine’, explains Lyons. And the stakes are high, both financially and professionally. When US retailer Target (TGT:NYSE) revealed it had been the victim of a data breach last month, it cost CEO Gregg Steinhafel his job.

What’s also shocking is just how easy it is to join the cyber crime or hacktivist ranks. ‘I saw on undercover forums that you can now get an SLA (service level agreement) on some malware guaranteed to infiltrate an environment for €300,’ Lyons tells me. But the biggest bombshell comes next. ‘It’s literally got a 24/7 support team making sure it works, any problems you’ve got 24/7 email and phone support.’ That will possibly shock those that have yet to grasp just how sophisticated and business-like today’s hackers are. ‘This is not a one-off either, they’re operating from all over the world,’ confirms Lyons.

Changing landscape

Cyber crime spells troubling times ahead for organisations both big and small, and especially for business leaders that can’t tell a byte from a reboot. ‘Back in ancient times, you’d build a castle and whoever had the highest walls was most protected,’ Lyons says. But those metaphorical walls today are coming down as trends like bring your own device (BYOD) to work, and others, emerge. ‘When you’re an IT executive the question is always how much is enough,’ explains Lyons. Companies could end up mailing infinite cheques into a bottomless pit. ‘So that’s why we’re here,’ the CEO explains. ‘We say to an organisation, here’s the risk that we perceive, let’s look at your budgets and advise you on the best way to invest that money. The trick is to understand what’s critical to your business, be it an excel spreadsheet, a new car design or whatever.’

The Aim-listed buy-and-build consolidator has established a business aimed at analysing cyber threats, providing the tools to blunt them, and often, managing the systems for clients. Those customers are typically small to medium-sized business in both the commercial and public sector, with anything from 1,000 to 10,000 staff, although Accumuli does work with bigger organisations through selected partners, including Cisco Systems (CSCO:NDQ), Juniper Networks (JNPR:NYSE) and big data specialist Splunk (SPLK:NDQ).

Lyons is cagey about naming customers though, in fact he sidesteps a few details, partly because of competitive circumspection and also because the firm is in close period ahead of full year results to end March pencilled in for 23 June.

Bolted together

It’s taken a while to pull it all together but Accumuli can embrace the future as a multi-layered network security business able to supply an end-to-end managed cyber security service for clients. Using vast volumes of data to spot odd behaviour, and potential security threats, it is becoming the first line of defence, or FLoD as it’s known in the business. ‘There’s some really clever technology coming out now, things that sets honey traps for cyber criminals so that the hunter becomes the hunted,’ Lyons tells me.

‘There’s an interesting organisation we’re working with at the moment that has the ability to track digital shadow footprints on both the normal internet and the dark web,’ which are websites that cannot be accessed by normal means, perhaps certain military websites for example. The technology can track activity and predict potential breaches of security, such as ‘conversations between hacktivists’ that can provide clues to future cyber attacks. Clever stuff indeed.

Enterprise IT is finely balanced between large trends (use of Big Data, mobile computing, cloud etc) versus executives demanding more with less - lower budgets, less people, Lyons tells me. ‘It’s a nightmare for them.’ From his point of view, ‘this is where an independent specialist like Accumuli can be the voice of experience and reason, we can work with an organisation and help them manage that perennial challenge’.

Lyons explains that ‘being independent is critical,’ as he wants the freedom to look at different technologies and recommend the right one for the client, which is the ‘key thing’. The business breaks down into three basic components:

• Technology solutions. Here it works with 27 different technology vendors to recommend the right selection for customers.

• Professional services. This entails board-level consulting and high-specification on-site implementation.

• Managed services. This is effectively implementing and running a client’s IT security systems 24/7.

Often contracts are won on a blended basis as Accumuli operates in a growing and fragmented market. ‘There’s a very interesting competitive landscape for us,’ explains Lyons. Last year the firm continued its buy-and-build land grab, acquiring Signify Solutions and Eqalis, the former bolstering its two-factor authentication technology and customer base, the latter the UK’s key reseller of Splunk, the near $10 billion data analytics supplier. This provides extra cross-selling opportunities as well as improving the quality of profits from recurring revenues now totalling 62%.

Acquisitions will remain key to Accumuli’s future growth, with typically 100 to 150 new customers thrown in for good measure. ‘If you look at the number of solutions and services we can potentially sell into a customer, it’s beyond 60,’ explains Lyons, suggesting that his strategy of selling more to more customers could have long legs.

‘Seven hundred and four customers times 60, that’s our landscape... if we were going for 30 years I’d be surprised if we could penetrate all of those.’ Investors should therefore expect acquisitions to either add client numbers, build on those 60 solutions, or both. Cash, debt, new shares, all will be considered to pay for future acquisitions to get the right deal on the right terms, although reading between the lines Lyons suggests a slight preference for cash deals like we’ve seen in the past. But the importance of getting the culture right is something the CEO has learned over his career, and he puts a lot of stock in getting the right blend of talent, experience and ambition.

Penetration, penetration, penetration

Lyons reveals that tracking penetration by the sales team is a key performance indicator (KPI) going forward, although he’s unable to comment on the current rate because of close-period rules. There are other KPIs that management track internally and perhaps some of these will be revealed to investors and the market, although the CEO presses the point that nothing will happen along these lines without thorough discussion and the board’s rubber stamp.

But this is an increasingly crowded space, and competition will presumably get stiffer. Lyons acknowledges the competitive threat as he explains three core challenges to his plans for building Accumuli. If one of the world’s software monsters, perhaps a Google (GOOG:NDQ) or IBM (IBM:NYSE), decided to chuck millions at building a security business from scratch, that would likely dent prospects he concedes, but quickly adds this is unlikely to happen. Getting and keeping good people is another potential hazard, ‘because this is a very specialised sector so it can be hard’. His response has been to set-up links with several universities and training programmes that develop young people and build their skill sets. There’s also an executive mentoring scheme in place.

Finally, large procurement frameworks are a potential issue. Accumuli’s consultants might go into a big organisation and make good recommendations that don’t tally with the clients’ preferred supplier lists. That might mean it misses out on product sales, although not always.

Our conversation draws to a close around dividends. Not many technology businesses have such strong cash generation that they can pay dividends, yet this year’s forecast 0.7p payout from Accumuli is far from insignificant, implying a 2.6% yield. ‘It’s great to be able to give money back to shareholders,’ Lyons says with pride.

Biography: Gavin Lyons Chief executive officer

Gavin Lyons was a rising executive star long before he left German software giant SAP to join Accumuli as CEO in July 2012, having been fast-tracked into his first senior director position at the age of 26 at The Caudwell Group.

Accumuli (ACM:AIM) 27.1p

Booming IT security opportunities puts the managed network security consolidator in a market hotspot, and by cleverly bolting select acquisitions onto the business, Accumuli should grow for years to come

Bull case

• Strong cash generation

• High recurring revenues

• Dividend attractions

Bear case

• Competitive market

• Acquisitions risk

• Scale limitations

Market value: £42.7 million

Prospective PE Mar 2015: 16.0

Prospective dividend yield: 2.6%