Customer numbers are soaring but Iain MacDonald wants more, writes Arthur Beesley

Perlico's youthful chief Iain MacDonald is just home from honeymoon but he's not in relaxation mode. After raising €20 million in new capital for the rapidly expanding telecoms company, he hardly has time to pause for Christmas.

Not yet 30, MacDonald is among a new breed of entrepreneurs who see the creation of a strong business in Ireland as a prelude to grander achievements on the international scene. As an enterprising schoolboy, he sold strawberries door- to-door at home in Mount Merrion, Dublin. Now he wants to build an multinational conglomerate from Perlico, whose name loosely derives from a Latin expression for "strength and longevity".

It's been a busy time for MacDonald, whose company offers broadband and fixed-line phone services. Employing a sophisticated direct marketing strategy that takes its inspiration from computer giant Dell, the business has increased its subscriber base to 75,000 from 10,000 in January.

Now comes a major investment from Michael Smurfit, the packaging magnate and former Telecom Éireann chairman, who was the leading figure in a fundraising effort completed just before MacDonald's wedding last month. If that's more than enough action in a year for any businessman, in AugustPerlico also spurned a takeover approach from mobile group O2.

Smurfit and his affiliates paid more than €10 million for an 18 per cent stake in Perlico. Existing shareholders subscribed for the balance of the €20 million, an investment that implies a valuation of €55 million on the business. That's quite a jump from a fundraising a year ago that implied a valuation of €20 million.

Yet Perlico enjoyed heavyweight support even before Smurfit entered the frame. Its backers include MacDonald's father Malcolm, a former corporate financier with ICC and Bank of Scotland, Ged Pierse of Pierse Construction, entrepreneur Dr Jim Mountjoy and former IAWS finance director David Martin.

"Our original shareholders would have seen a 600 per cent growth over the period of about 30 months," MacDonald says. The business is expanding more rapidly than anticipated, but the growth path is in line with expectations. "It's been the plan right from day one to do that."

The new money will fund the company's development as it prepares for a flotation late next year on the Alternative Investment Market (AIM) in London, in which it might raise another €25 million.

"It's an absolute intention of the business to do so. Our intention is to do so towards the back end of next year. Naturally we're a very well capitalised business at the moment so the requirement for capital is not there in terms of securing a listing, but it is the intention of the business longer term."

While Perlico might yet go for a full stock market listing in Dublin or London, MacDonald's current focus is maintaining the momentum of its growth and providing new services. He is already on record saying the company wants to have more than 140,000 subscribers by the time it takes out a public listing.

"We are pushing down the pedal further in terms of customer acquisition. We are spending on marketing. We grow our customer numbers as a result of that . . . We intend to continue to grow our customer base very aggressively and we want to absolutely take the market."

MacDonald says Perlico should be seen more as a "customer service retailer" than a telecoms company.

"We are in the business of being extremely good at customer acquisition and customer retention. We have heretofore applied that to the fixed line and broadband market. We have delivered in that we are now the number one alternative to Eircom for the Irish consumer so we've ticked the box on that."

Still, the company had a brush with bad publicity this year when certain unhappy customers phoned Joe Duffy's Liveline radio show. MacDonald says that was not reflective of the fundamental business. "Our customers are joining us and our customers are staying with us," he says.

"We are a fast-growing business, there's no doubt about it. We're also high profile. We are the only ones who are absolutely succeeding in this market, far and away above everybody else. In terms of doing that, we are acquiring thousands upon thousands of customers every month.

"During that period, unfortunately a very, very small proportion of customers didn't get the experience or the customer service standard on which the business was founded. We knew about it. We eradicated it. We put the entire resources of the company into doing so. We completed that task towards the middle of September. A small fallout from that got some airplay. We feel it was totally unrepresentative of the fact that thousand of customers were joining us every week."

As for new services, he says the company will soon provide broadband television, video-on-demand and web-hosting services. In addition, MacDonald is plotting Perlico's entry into the mobile phone sector by way of a mobile virtual network operator (MVNO) contract with one of the established players.

He won't say with whom he is talking or whether Perlico will go into that business before a public listing, but sees significant scope to undercut the dominant mobile providers.

Even though the big-beast mobile groups fight for market share on the high street, MacDonald insists Perlico will have no need to move on to the street when it goes mobile.

His business model wouldn't allow him to do so. For Perlico, direct marketing is a fine art. The company sells it wares over the phone and web, and each of its advertising and promotional campaigns uses a unique phone number or internet code.

This means MacDonald and his colleagues can pinpoint the success or otherwise of every single offering. For marketing purposes, Perlico also keeps a very close watch on the profile of its customers and their demands. It follows that the company fine-tunes its campaigns to stimulate demand.

Long term, MacDonald sees potential to apply the business model to financial services and the electricity market. With that in mind, Perlico bought small-scale electricity supplier Direct Independent Energy last February. Competition has not flourished in that sector so MacDonald has no intention of going after customers in a big way until the market matures.

In MacDonald's account, Perlico was not saddled with "first mover disadvantage" when the telecoms market deregulated. The company won large numbers of new customers when Smart Telecom teetered on the brink of collapse, but MacDonald says his business model is fundamentally different to that of its rival.

Perlico has commercial contracts with groups such as Tullow Oil, Sony and Peter Mark, but the consumer offering will continue to be its main focus in the foreseeable future.

Persuading customers to move from dial-up internet to broadband has become easier within the past year, MacDonald says.

Broadband is now seen as the basic internet service requirement and no longer regarded as an add-in, he says. As a result, Perlico's fixed-line customers are more willing to accept broadband as part of their package. MacDonald won't quantify the number of broadband and fixed-line subscribers, but says the business sells more than 100,000 services to its 75,000 subscribers.

If MacDonald has his way, Perlico's revenues will expand rapidly in 2007 from an annualised run rate of €50 million in January. "In 2007 we expect to turnover in excess of €80 million and be profitable," he says.

He won't put a figure on the profit, but says the company would already be profitable on the bottom line if it wasn't investing so heavily in its top-line expansion.

Factfile

Name:Iain MacDonald

Job:Chief executive, Perlico

Age:29

Background:MacDonald's first big job was with software group Intergraph in Dublin. He always wanted to go into business as an owner-manager and set up Perlico in 2003.

It's not his first venture. He secured advertising from banks to start school magazines when he was still at Blackrock College. During a "hot summer" long ago, he bought strawberries at a discount from Quinnsworth and sold them door-to-door. He is a graduate of UCD.

Why he is in the news: Michael Smurfit and his affiliates have taken an 18 per cent stake in Perlico in a fundraising that values the entire business at €55 million. Existing shareholders include MacDonald, as well as non-executive directors Dr Jim Mountjoy, David Martin and finance director David Manifold. Ged Pierse of Pierse Construction also has a big stake.

Family:Just married, he recently returned from honeymoon in Antigua and Miami. His father Malcolm, now retired from Bank of Scotland, is chairman of Perlico.