Desmond buckles up for long haul at Datalex

When Dermot Desmond first invested in the airline software company Datalex, Celine Dion was in the charts singing the theme song for the film Titanic. For more than a quarter of a century, his support has gone on, and on.
Last week, the financier led a €17 million placing of stock. He will also take his share of an €8 million open offer, and claw back any stock not taken up by his fellow shareholders. As a result, Desmond could end up with more than 50 per cent of the company.
Part of the proceeds will pay down loans that Desmond’s company Tireragh advanced to Datalex. Those loans attracted interest rates of up to 18 per cent. That sounds tasty, yet it’s not so rare for emergency capital.
Also, in 2019, after the company was hit by an accounting scandal and then the loss of its marquee customer, Desmond acquired €4 million of stock at €1. Last week shares were at 41c.
Desmond is not the only devotee. Former Glen Dimplex chief executive Sean O’Driscoll and Nick Furlong’s Pageant are active buyers. After this funding round, the three investors will control over 70 per cent of Datalex.
Its profit history is patchy at best. Also, the pitch to investors has barely changed over the past 26 years. Its plans are to free airlines from legacy global distribution systems, which rest in the hands of just three companies, Amadeus, Travelport and Sabre. Datalex says its software gives airlines more freedom to price fares, target customers and sell ancillaries. It ultimately hopes to facilitate car hire and hotel deals too. Datalex has a bunch of blue-chip clients, including Air China, Aer Lingus and, perhaps most importantly of all, easyJet.
In software, there is a rule of 40. Businesses are sustainable if their percentage profit margin and growth rate, combined, exceed that magic number. Datalex is a bit off that. It has also flagged a potential €5 million fundraiser next year. The long haul still has a way to go, but all the heavy-hitters are staying on board.
Consider where Seán Quinn’s former conglomerate — now close to being dismantled — has ended up. His glass operations were sold almost a decade ago for €400 million to Vidrala, a large Spanish glass packager. Quinn insurance was bought by the US company Liberty, which last year sold it to Generali of Italy alongside Liberty’s Spanish and Portuguese operations for €2.3 billion. The Irish unit was probably worth north of €400 million.
The old Quinn Health last traded for €650 million to Axa, a German insurer, having been previously owned by AIG, an American company. Last week Sibanci, one of Turkey’s biggest conglomerates, bought Mannok in a deal valuing the old Quinn building products and plastics unit at €330 million. US hedge funds had owned 78 per cent of it.
All were blue-chip purchasers, all international. Throw in the €300 million expected from the imminent sale of the Quinn’s hotel in Prague, and you are looking at assets worth over €2 billion.
Nobody said Quinn did not build decent businesses. It will grate that so much profit — hundreds of millions — has been made in the purchase and disposal of those same businesses in the past decade.
The medical devices sector has been a stable employer in this country, and a good one. So Cardinal Health’s decision to shut its Tullamore operations and make 300 workers redundant came as a bit of a shock.
Yet by the time it shuts, the factory will have been running for 44 years, or more than two patent life cycles. It opened as Sherwood Medical, which was acquired by Tyco, then spun off as Covidien, whose medical device business was sold to Cardinal Health in 2017. So it was both old and twice consolidated — that made it vulnerable.
When ownership changes, there is always a rationalisation risk. Cardinal had barely invested in Tullamore since the takeover. The carrying value of the factory equipment at the end of June 2023 was just €7.8 million.
Production lines are being shipped to Costa Rica and Mexico. Shifting from a low-tax location to low-cost ones suggests that much of Cardinal’s Irish product was coming off patent. It’s tough for the Offaly town, yet 44 years is not a bad swig from a multinational employer, and severance terms are generous. It could not have been a shock to IDA Ireland. A replacement strategy should be well advanced.
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