Today’s news that Bellevue, WA-based software firm Bsquare (NASDAQ: [[ticker:BSQR]]) is buying Minneapolis, MN-based TestQuest for $2.2 million has sparked some lively discussion. Bsquare founder and former CEO Bill Baxter, who left the company in 2004, wrote in to say “the investment is not a huge thing for the company” and that “they might benefit marginally,” as long as “they can contain the costs.”
Brian Crowley, Bsquare’s president and chief executive since 2003, has a different take, and called me to make sure he got his point across. “I’m really pretty excited about the deal,” he says.
Some quick background: Bsquare’s strategy since the 1990s was to grow its software services and products together, says Crowley. It peaked with $63 million in revenue in 2001, but that declined to $37 million the following year. “My mandate from the board was ‘Hey, let’s turn this thing around,'” Crowley says. “Let’s do what we do best, which is services, and offer our own products along with it. That’s been our mission for five years since I’ve been CEO.” Last year, Bsquare generated just under $60 million in revenue, with $2.8 million in net income. Through the first nine months of this year, it has reported $48.6 million in revenue and $2.6 million in net income.
Bsquare’s broad strategic goal, as Crowley outlines it, is to bring its products and services to bear on smart devices and help businesses take products to market faster with better quality. “The issue is the increasing complexity of these devices,” he says, meaning getting software to work across different platforms and operating systems, for instance. “We’ve been growing our services practices.”
So what TestQuest brings to the table is “a full, automated test framework,” says Crowley. “You can connect to any kind of device using any kind of operating system. You can verify that the experience the user is having is what you intended. It’s a great fit for Bsquare.”
More specifically, he points to three reasons why the acquisition is a big deal for his company:
1. It could potentially double product sales. Most of Bsquare’s revenues come from the resell of third-party software, Crowley says. Its smallest revenue line is products. Last year it sold about $4.2 million of products. TestQuest also did $4.2 million in sales of its own products, which could be a significant addition to Bsquare’s top-line sales, and bottom line profit.
2. Geographic expansion. “We’re heavily focused in North America,” says Crowley, adding that it’s where 95 percent of Bsquare’s current business is. (Bsquare also sells in Taiwan and Japan.) But TestQuest has “really good, established people and relationships” with customers in China, Korea, Japan, and Europe, he says.
3. Big new customers. “We’ve been super-strong at selling services to OEMs [original equipment manufacturers]. But TestQuest sells to wireless carriers,” Crowley says, including Verizon and Virgin Mobile. Other prominent customers are the U.S. Postal Service and FedEx (for testing field automation applications on devices).
Crowley says the acquisition brings Bsquare’s total workforce to just under 300 people (22 TestQuest workers are joining). “Combining our own capability with TestQuest, it’s a really nice solution for enterprises who want to test devices. Strategically, it’s really important.”
And finally, on the issue of the cost of maintaining the Minnesota office, Crowley says, “We’re pretty low overhead. It’s not a big deal having remote offices.”
