Business in focus: CTS
We sat down with David Byrne, CFO of CTS, the only cloud provider dedicated to the UK legal sector, to discuss the impact of PE investment, the challenges of managing IT services for law firms, and making a commercial virtue of a vertical specialism.
Tell us a bit about your background.
I have over 20 years’ experience advising high-growth companies on strategy, financial performance and M&A. I’ve been a chartered accountant for nearly 20 years, with that time split roughly equally between roles in industry and in practice as a corporate finance advisor. Most latterly as an M&A Director at PwC prior to joining CTS.
The common theme throughout my career has been working with high-growth companies, predominantly backed by private equity (PE).
And how would you describe the CTS offering?
We provide cloud infrastructure to law firms and the legal services market. We currently provide services to over 80 legal clients.
Our USP is our in-depth understanding of this vertical – we tailor solutions that really meet the needs of the legal services sector, together with our unique client focused approach. Across our business we focus on driving continual improvement in service delivery, relationship management and technical expertise, all aimed at improving fee earner productivity.
There are around 20 key legal sector specific applications, all of which CTS has been hosting for over a decade. That experience and expertise enables our team to uniquely optimise performance for our clients.
On a simplistic level, we take care of IT infrastructure – we keep the lights on, allowing client IT teams to spend more time within their businesses. However, as a trusted partner we do much more. We consult on new technologies and how they can benefit our clients, and design networks with other key vendors to reduce risk and optimise performance. We also deliver a range of managed services, including a fully managed SIEM solution that helps keep our clients safe from the growing risk of cyber attack (around 1 in 3 law and accounting firms have been subject to attack in the last 18 months).
What are the challenges of managing IT services in a sector like the law?
Cyber security and moving to the cloud are the two biggest areas for many firms and, done well, can bring huge benefits – but are also their biggest headache. Our challenge is to help law firms pick an optimal path from very different starting points and then to help them transition to the cloud (public, private, or hybrid with existing on-site IT) and at the same time protecting their data.
In a law firm, typically 3-5% of turnover is spent on IT. Getting the right systems in place can be a key enabler of productivity and flexibility. From a profitability perspective, legal firms – especially those outside of the Magic Circle [the Top 5 London-based law firms] – operate within quite a tight competitive environment. So finding ways to deploy IT to increase fee earner productivity can make a huge difference to the bottom line.
For example, where once you might have needed a team of 10-12 engineers internally to look after your own environment, we’ve got dozens of engineers who are experts in managing law firm-specific infrastructure needs. This can help free up a client’s internal IT resource to add value to the business, for example by automating processes and workflows – things that once took days of manual effort and can now be done in minutes with new systems.
"There is a perfect storm in the legal world at the moment, because the three main practice management systems are all approaching the end of their life. This is forcing the industry to upgrade to new practice management systems."
It’s a chance to go for something that is more sophisticated, with far more functionality, but of course the IT infrastructure demands are correspondingly high. So law firms are looking at changing core business-wide software applications as well as the infrastructure which enables it all to happen. The majority now want to explore hosting these core applications with a specialist who understands their unique needs while enabling even better performance.
And what might that look like?
Excluding those firms who wish to upgrade their on-premise infrastructure, we see three different possible scenarios here. Firstly, the private cloud solution is already widely adopted and involves hosting some or all of a firm’s data and applications in a private, usually UK-based cloud hosting provider. This provides total control over data, where it’s stored, which jurisdiction, down to which specific data centre.
Then we’re also seeing some public cloud adoption, with legal services looking at some of the big providers such as Azure or AWS.
And finally, there’s also the interesting option of a hybrid environment where law firms have a mix of on-site, private and public cloud hosting playing to the strengths of both models.
Do you have a favoured option?
We’re completely agnostic here as we provide on premise, public, private and hybrid solutions. There is no generic answer as individual firms have very different starting points and operating models – for example a high volume litigation or conveyancing firm would be very different to a more traditional corporate practice with very different challenges and priorities. One way that we really add value is providing a strategic partnership in navigating this landscape. We help our clients to plan their IT strategy and take them forward on that journey.
I think in the future we’ll see more hybrid cloud solutions, with private-cloud provision for some applications which are more secure, more cost-effective or have better responsiveness, and public cloud for some other applications such as disaster recovery.
Industry: Information Technology and Services
Company size: 11-50 employees
HQ: Daresbury, Cheshire
Ownership: Privately held
How do you think the tech will change over time here?
Change is a constant – I’m sure if we were having this conversation in two or three years’ time, the landscape would already look very different. Right now, public cloud is growing, while on premise and private cloud have their devotees as they are the more tried-and-tested solutions. But what our clients will always need is a strategic partner who can help them understand the market and pick what’s best for them in terms of performance, cost effectiveness and ROI.
One area where we’re seeing a lot of interest from law firms is in the use of AI. There are some very powerful AI applications that can carry out intelligent searching – enabling companies to do contextual searches on the fly in mid-litigation or trying to find a reference to a specific issue, for example. It is looking like AI will be a very powerful tool in some key areas with potentially enormous savings of fee earner time. It’s clever stuff, advancing almost daily and we’ve helped a number of clients deploy systems via the cloud.
So how did CTS come about?
CTS was founded 12 years ago by our CEO Nigel Wright. It’s a true entrepreneurial story – he literally saw a market which was being poorly served, bought a laptop and got set up from his bedroom.
Fast-forward to today: we anticipate our team growing to 100 people this year (over 80% of our employees are operational or tech specialists), and provide cloud solutions to over 80 legal and professional services firms, including seven of the UK’s top 200 law firms.
The business took in private equity investment at the end of 2017 from Tenzing PE, a relatively new PE house which raised its maiden fund of £200m in autumn 2017, and we are its second portfolio investment. Tenzing is focused on working with very fast-growing tech-enabled businesses, and currently has two companies in the Tech Track 100 [CTS and CitNow].
What has the PE input meant for the company?
Our focus is very much on continuing to grow organically by being a trusted partner to our clients. Our business model is simple: to provide exceptional, business-focused solutions and service in an industry that is unfortunately all too often categorised by mediocrity. So in many respects it remains business as usual post investment.
PE input is helping us to scale the business and provide greater technical depth and capacity across our core teams to roll out emerging technologies and hybrid cloud solutions – we think that’s something that will be quite attractive commercially and will provide best performance and suitability to many of our clients.
In terms of leadership and governance, we’ve moved from an owner-managed structure to a board-led structure, with a new chairman, and brought in additional external expertise and experience to the business to support the CEO. This will ensure that decision making is widened and doesn’t become a ‘bottleneck’ within the business as it expands.
We’ve also invested heavily in our infrastructure over the last year, building a state-of-the-art network and security operations centre – the Starship Enterprise of our whole operation! Alongside this we have invested significantly in our private cloud so that we can take our own capability here to very scalable levels and provide the best possible responsiveness and latest infrastructure technologies such as hyper-CTS to our clients.
On the operational side, we’ve also invested heavily in our team, so that we can continue to provide the first-class service that our customers expect.
Data and information security are a common concern for our clients and legal firms are an obvious target for malicious attacks. PE investment has enabled significant product development, and this year we’ve launched a fully-fledged security product that can sit on our client’s on premise and hosted environments and be constantly on guard for security breaches.
Another benefit of this kind of investment is that it provides the firepower to fund inorganic growth, and we have an M&A strategy focused on adding additional specific capabilities and possibly a second professional services vertical over this investment cycle.
You’ve made a virtue of your vertical specialism. Can you ever see that changing?
It’s possible that over time we might look to broaden into other professional services such as accounting and financial services, which have a similar environment, partnership structures, fee earners, and lots of IT applications in common, eg document management. But we would still remain vertical specialists.
"Ultimately, we want to do a small number of things very well. Our specialism enables us to deliver fantastic implementations and really first-class, in-depth support for our client base, so we never want to lose that. We have substantial and growing market share, we are one of the leading providers into legal services – but our ambition is to be the ‘go-to’."
There’s an increasing need for professional services firms to have responsive IT that enables their fee earners to go out and do their job. The specific tech solutions may change, but we don’t see that basic fact of legal life changing.
As a CFO does technology play a big part in your approach?
Definitely. Over the length of my career I’ve seen the basics of preparing accounts reduce to a fraction of the time and the finance role become increasingly business-wide. The business information and technology systems we use are now very powerful.
The key challenge to finance functions is ensuring that meaningful decisions and quality information come out clearly from the wealth of financial and operational data we now have available.
The ease of use of BI systems is also helpful, allowing dashboards and reporting to be circulated across the business and giving managers and team members the tools to easily drill down into data themselves in real time rather than having to wait for finance or IT departments to generate reports.
So tech will change the finance function?
It’s already happening. I see the finance function evolving over time, with finance teams increasing becoming business partners rather than number-crunchers. I think that the traditional role of processing will continue to reduce, freeing up finance teams to show more strategic leadership, and partner with key operational parts of the business.
Some of the best examples of effective deployment of the finance function that I’ve seen in my career have been where finance team members are partnered with managers throughout the business, replicating the CEO/CFO relationship.
What learnings would you pass on to an entrepreneurial CFO at the start of their journey?
It’s important to understand your strengths and weaknesses and really play to those. In my experience maximising strengths is the most effective way to add value.
In this role, you need to have a very clear sense of the raison d’etre of the business and where you want to take it. Things will change over time, such as the technologies and the personnel, but you always have to come back to that clarity of vision.