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Software Mind Optimistic About 2024 Despite IT Industry Challenges

COMPANIESSoftware Mind Optimistic About 2024 Despite IT Industry Challenges

Software Mind, part of the Ailleron Group, is gearing up for further acquisitions and the expansion of its offerings in key strategic markets. The company plans to complete at least one investment in 2024, as stated by CEO Grzegorz Młynarczyk in an interview with PAP Biznes. Software Mind is particularly interested in sectors such as Biotech, Life Science, and Financial Services, with expectations of group-level growth in 2024.

In March, Software Mind announced the acquisition of 100% of the shares in Prosoft LLC, a U.S.-based company, for approximately USD 40.6 million. Prosoft LLC operates in both North and South America, serving clients in the medical, commercial, fintech, and tech services industries.

GRZEGORZ MŁYNARCZYK, CEO OF SOFTWARE MIND
Grzegorz Młynarczyk, CEO of Software Mind

This year, we acquired Prosoft LLC, which operates under the brand number8. They specialize in building development teams for American clients, including Fortune 500 companies like Humana, a leading private insurance company in the U.S.,” said Grzegorz Młynarczyk, CEO of Software Mind.

Besides the acquisition of number8, Software Mind sees potential for further acquisitions.

“We aim to finalize at least one more investment this year. Our previous acquisitions have helped us scale our operations, open new geographical markets, and diversify our talent pool, achieving this plan entirely,” Młynarczyk stated.

“Currently, our acquisitions are focused on expanding our offerings and targeting strategic markets where our clients operate, namely North America (USA, Canada) and Western Europe. These regions are where all our clients are present,” he added.

The CEO emphasized the importance of increasing the company’s presence in these areas due to the availability of specialists and the advantage of working within the same time zone.

“Our future investments also aim to broaden our service offerings. We aspire to be the first-choice partner for clients seeking modern IT services—from consulting to co-designing user interfaces for optimal experiences, designing complete solutions, and providing Managed Services where we take full responsibility for client solutions,” Młynarczyk explained.

“In terms of revenue, we are growing both organically and through acquisitions compared to last year. Gaining Enterprise Investors as a shareholder in 2021 has allowed Software Mind to accelerate development and execute our ‘Buy and Build’ strategy,” he added.

Since the investment by Enterprise Investors, Software Mind has completed six acquisition transactions in key destinations globally, including the U.S., Latin America (Argentina, Costa Rica, Honduras), and Europe (Romania, Moldova, Poland). This has expanded their team to over 1,500 experts.

“Looking ahead, we intend to continue organic growth and expand our offerings through additional acquisitions. Our sales grew by 10% year-over-year last year. The market has changed significantly over the past 18 months, and we see early signs that the U.S. market is slowly beginning to recover,” Młynarczyk said.

“We have been involved in machine learning and Generative AI for over a decade. We are investing in teams and want to continue developing them—this is a key criterion for seeking potential acquisition targets. This area is crucial to us, and we deeply believe in the value these skills and tools bring to our clients’ businesses,” the CEO noted.

“We are also investing in other current areas and those we want to add to our portfolio. Biotech, Life Science, and Financial Services are particularly appealing to us,” Młynarczyk added.

The CEO mentioned that the company continues to focus on telecommunications, which it has been developing since its inception, and is expanding towards the full TMT (Technology, Media, and Telecommunications) vertical. Software Mind actively seeks potential targets in this area.

“In addition to manufacturing, we see significant potential in the Biotech and Health Care verticals. For instance, we have developed a medical service solution in one European country. Using LLM models, we can help patients classify their medical conditions much faster by analyzing symptoms,” he said.

“We are also implementing solutions in less obvious sectors, such as Agriculture. For one client, we built a solution that saves millions of euros annually. By using language models to analyze data from various sources, farms, and scientific research, we can predict certain problems and events with high probability and respond much faster,” he added.

Młynarczyk highlighted that the demand for AI solutions is also increasing in the Automotive industry.

“Additionally, AI is increasingly used by fintechs, banks, and insurers to improve service speed and quality, predict certain behaviors, and tailor offers to individual needs based on customer behavior patterns,” he said.

The CEO revealed that nearly 50% of the company’s revenue currently comes from North America, with the remaining over 50% coming from Europe, mainly Western Europe—DACH markets, the UK, and Nordic countries. These regions are the primary recipients of Software Mind’s services.

“The primary trend and common element across all markets is the transition to digital channels, ensuring services are as accessible as possible through electronic means,” the CEO stated.

He noted a trend of moving away from individual human service to service supported by AI tools or delivered in other ways but through digital channels.

“This trend is also linked to the transition to cloud solutions, whether private or public clouds. This trend has been visible for several years and continues. Significant portions of investment budgets are allocated to these goals. In the IT sector, AI remains the number one trend,” he added.

“The UK remains a strong market for us. Despite some fluctuations, clients continue to have a growth appetite. We want to increase our sales capabilities in the UK and invest there,” said Grzegorz Młynarczyk.

The CEO noted that the European market dynamics indicate a significant slowdown in Germany. This slowdown has been present for some time, with no signs of significant change in the coming quarters or even by the end of this year.

“In the U.S., after a period of mass layoffs in the tech industry, we are now seeing a slow positive trend. I hope the market will return to better dynamics by the end of the year,” he said.

“There is a notable difference between the U.S. and Europe. Europe is accustomed to projects where we build autonomous teams delivering turnkey projects. In the U.S., there is a strong preference for building teams in the same time zone, with clients more involved in managing these teams,” he added.

Młynarczyk emphasized that the company is preparing for the market to return to previous growth dynamics.

“We are using this period to enhance our capabilities, for example, by adding new verticals,” he said.

“Funds raised through private equity or venture capital eventually need to be released to achieve returns. However, start-ups still find it challenging to secure new funding,” said Grzegorz Młynarczyk.

“We have commitments from many start-ups to start working with us once they secure funding. However, we observe significant resistance from founders to new funding rounds, as these rounds often value them much lower in terms of financial parameters,” he added.

The CEO noted that previously, for VC investors in start-ups, growth dynamics and customer acquisition were key valuation parameters. This allowed some start-ups to raise substantial funding rounds.

“At later stages, companies could release this funding by hiring internally or working with companies like ours. Now, financial results largely determine the attractiveness of start-ups to investors. Cash flow is crucial, EBITDA is crucial, and VCs and private equity evaluate their potential investments much more rigorously,” he said.

Młynarczyk pointed out that companies involved in language models and data collection and analysis remain attractive to VCs and private equity, and this will not change. Valuations in this area are high and will remain so in the near future.

In 2023, Software Mind achieved sales revenue of nearly PLN 376.8 million, representing almost a 10% increase compared to 2022. Operating profit was PLN 48.9 million, and EBITDA was nearly PLN 54.8 million.

“Undoubtedly, 2023 was a challenging year for the IT industry, with significant layoffs, especially in North America, often negative dynamics for IT companies, and a weaker dollar. However, our actions have yielded results,” said Grzegorz Młynarczyk.

“For the past few years, our industry has accustomed investors to above-average growth. In 2023, and also in 2024, we will continue to see lower dynamics than in previous years. Many tech companies are publishing weaker results, but at Software Mind, we are optimistic about 2024 and plan for group-level growth. The market situation means that organic growth dynamics are below previous levels and our ambitions, but we want to use this time well to expand our offerings and scope of operations, preparing for when the market rebounds and returns to more dynamic growth,” he added.

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