Martin Read, chief executive of LogicaCMG, yesterday mounted a robust defence of his latest acquisition as the IT services group reported half-year results heavily affected by a previous deal.
Profit fell sharply from the cost of integrating Unilog, the French company acquired in January, while revenues rose, helped by the integration.
Pre-tax profit fell 21 per cent to £29.5m in the six months to the end of June; revenues rose 39 per cent to £1.24bn.
Mr Read admitted that the market reaction to last week's announced SKr11.9bn (£870m) acquisition of WM-data, its Swedish rival, was "disappointing". Shares in LogicaCMG have fallen 10 per cent since the deal was announced. Yesterday, they fell 6½p to 153½p.
But he said the integration of Unilog in France, with pro forma revenue growth of 7.6 per cent in the country, showed LogicaCMG could digest its large acquisitions and use them to win new contracts.
After the announcement of the Unilog deal, LogicaCMG's shares fell but then recovered. "I think we'll see a Unilog here," said Mr Read of the market reaction to his latest acquisition.
One concern for analysts is there will be a "flowback" from WM-data investors selling shares in the new combined group to reinvest them in Nordic markets.
Seamus Keating, LogicaCMG's finance director, said he had spent a day last week talking to shareholders and had "got the sense that they were willing and able to be holders of the stock of the larger group going forward".
Earnings per share were 0.7p (2.7p). The dividend rose from 2.11p to 2.2p.
FT Comment
*Is there any point in building an empire? Mr Read believes IT services companies need to be big or risk being outgunned for international contracts. But there are plenty of sceptics who believe WM-data adds little beyond scale. Yesterday's results show Unilog was integrated successfully. A sign of whether investors believe Mr Read can do the same with WM-data will come as shareholders in the Nordic company decide whether to stick with shares in the new enlarged group in the coming months. On a multiple of about 15 times 2006 forecast earnings, those shares look inexpensive. And Mr Read has indicated a pause in the grand expansion plan, which should reassure some.
Copyright The Financial Times Limited 2006
Thursday, August 31, 2006
Friday, August 25, 2006
LogicaCMG Will Boost Nordic Market Position With WM-data Buy (Gartner)
LogicaCMG's planned purchase of WM-data shows the continued desire of European service providers to offer more focused services in wider geographies. Integration will be key as LogicaCMG completes the acquisition.
Thursday, August 24, 2006
IBM Acquires ISS (Line56)
$1.3 billion deal caps off busily acquisitive month for tech giant; addressing the important services level of security, particularly in regulated environments read
Wednesday, August 23, 2006
IBM to buy IT security business (FT)
IBM on Wednesday took one of the most dramatic steps yet in its bid to overhaul its slow-growing services business with a $1.3bn software acquisition.
The all-cash purchase of Internet Security Systems will further erode the barriers between IBM’s services and software divisions.
It reflects an acceleration in Big Blue’s use of acquisitions to raise its profile in some of the fastest-growing segments of the IT market as it battles to revive its flagging growth rate.
ISS, whose software is used to fend off intrusions against corporate and government IT networks, will be run as part of IBM Global Services, even though IBM already sells security software under the Tivoli brand via its separate software division.
Combining ISS with services rather than the software division reflects IBM’s broader plan to use software to revitalise services.
Backed by ISS products, IBM will be better placed to sell “standardised, repeatable, software-based services”, said Val Rahmani, general manager of IBM’s infrastructure management services business, who will oversee the ISS business.
The technology giant set out on its services strategy last year, moving executives to bring a more product-based approach to the services division.
The ISS deal marks the services division’s biggest acquisition since the purchase of the PwC consulting division in 2002.
IBM agreed to pay $28 a share for ISS, an 8 per cent premium to its closing price the day before.
Tom Noonan, chief executive of ISS, said putting his company into the services division echoed a broader trend in the software world. More than half of ISS’s revenues come from subscriptions rather than traditional up-front software licences, he said.
IBM said it would run ISS as a separate unit within its services business and leave its existing management in place. It also said ISS’s product strategy would move “in lock-step” with Tivoli.
It is IBM’s third big software deal in the past three weeks. It agreed to pay $1.6bn for FileNet, which makes content management software, and $740m for MRO Software, whose technology is used to track and manage corporate assets.
The deals partly mark IBM’s attempt to counter a slowdown in technology spending by corporate and government buyers.
Copyright The Financial Times Limited 2006
The all-cash purchase of Internet Security Systems will further erode the barriers between IBM’s services and software divisions.
It reflects an acceleration in Big Blue’s use of acquisitions to raise its profile in some of the fastest-growing segments of the IT market as it battles to revive its flagging growth rate.
ISS, whose software is used to fend off intrusions against corporate and government IT networks, will be run as part of IBM Global Services, even though IBM already sells security software under the Tivoli brand via its separate software division.
Combining ISS with services rather than the software division reflects IBM’s broader plan to use software to revitalise services.
Backed by ISS products, IBM will be better placed to sell “standardised, repeatable, software-based services”, said Val Rahmani, general manager of IBM’s infrastructure management services business, who will oversee the ISS business.
The technology giant set out on its services strategy last year, moving executives to bring a more product-based approach to the services division.
The ISS deal marks the services division’s biggest acquisition since the purchase of the PwC consulting division in 2002.
IBM agreed to pay $28 a share for ISS, an 8 per cent premium to its closing price the day before.
Tom Noonan, chief executive of ISS, said putting his company into the services division echoed a broader trend in the software world. More than half of ISS’s revenues come from subscriptions rather than traditional up-front software licences, he said.
IBM said it would run ISS as a separate unit within its services business and leave its existing management in place. It also said ISS’s product strategy would move “in lock-step” with Tivoli.
It is IBM’s third big software deal in the past three weeks. It agreed to pay $1.6bn for FileNet, which makes content management software, and $740m for MRO Software, whose technology is used to track and manage corporate assets.
The deals partly mark IBM’s attempt to counter a slowdown in technology spending by corporate and government buyers.
Copyright The Financial Times Limited 2006
Monday, August 21, 2006
Accenture Aims for U.S. Life Policy Administration, BPO Gains (Gartner)
In agreeing to buy NaviSys, Accenture seeks a bigger role among U.S. life insurers for policy administration systems and business process outsourcing. Customers should monitor how Accenture will integrate NaviSys products. read
Another step on the path to IT’s top 10 (FT)
Almost a year ago LogicaCMG was approaching another big acquisition with some trepidation.
That summer had seen a wave of protectionist rhetoric from French politicians worried that Pepsi was going to launch a bid for Danone, the flagship food group – not the ideal climate for Logica to go after Unilog, one of France’s leading technology companies.
In the event, the fears of Martin Read and his team were unfounded. The logic of consolidation in the IT services sector was such that his €931m ($1.2bn) bid for Unilog was accepted by the target’s management and met with no stirrings of “economic patriotism” from the country’s government or media.
The logic continues today. Multinational companies are keen to have fewer IT suppliers and want those that remain to be able to serve them cheaply and globally. Established western IT providers such as IBM, Accenture and Logica are also having to cope with the rise of low-cost Indian rivals.
Wanting to play a key role in the consolidation, Logica has set a long-term target to become a top-10 IT services company. Monday’s announced acquisition consolidates it as Europe’s second-largest company in the sector by market value after CapGemini of France.
Investors have not always supported the acquisition policy with unfettered enthusiasm. The company’s shares are below the level they were trading at this time last year and, although prone to intra-day volatility, they have remained stagnant over the past few years, underperforming CapGemini and Atos Origin, the other large European competitors.
Mr Read was phlegmatic on Monday in the face of a 7.5 per cent fall in Logica’s share price. “It was inevitable with a deal like this that you would get a lot of hedge fund activity,” he said. He pointed out that the shares had fallen on news of the Unilog deal before recovering as integration proceeded.
The more sceptical shareholders will now hope that the boundaries of the empire stay fixed for some time. “Investors tend not to forgive companies that overpay,” said Hans Slob, an analyst at Rabo Securities.
But Mr Read is unflinching in his determination to enter the global top 10 of IT services companies, dominated by US heavyweights such as IBM. “We’ve been on a journey,” he said.
“When I started with Logica 13 years ago there were 3,000 people. This will take it to 40,000.”
The company’s issues are not all related to scale. In Germany, Logica has only recently started to turn a profit, helped by the integration of Unilog’s profitable business in the country. There is no obvious quick-fix takeover target that would speed up an improvement.
Apart from high-end IT services in areas such as electricity trading and anti-money laundering for central banks, Logica also has a wireless division serving mobile phone operators, which many analysts fear does not make a good fit with the rest of the company and does not generate sufficient profits. Mr Read, though, is in no rush to sell.
Mr Read sees the threat to Logica and the wider industry coming from India, where companies such as Tata Consulting and Infosys are already larger than their Anglo-Dutch rival.
“It’s particularly refreshing to see a company like Logica expand beyond our shores,” said one person close to the deal yesterday. Observers are divided on whether this patriotic view makes sound business sense.
That summer had seen a wave of protectionist rhetoric from French politicians worried that Pepsi was going to launch a bid for Danone, the flagship food group – not the ideal climate for Logica to go after Unilog, one of France’s leading technology companies.
In the event, the fears of Martin Read and his team were unfounded. The logic of consolidation in the IT services sector was such that his €931m ($1.2bn) bid for Unilog was accepted by the target’s management and met with no stirrings of “economic patriotism” from the country’s government or media.
The logic continues today. Multinational companies are keen to have fewer IT suppliers and want those that remain to be able to serve them cheaply and globally. Established western IT providers such as IBM, Accenture and Logica are also having to cope with the rise of low-cost Indian rivals.
Wanting to play a key role in the consolidation, Logica has set a long-term target to become a top-10 IT services company. Monday’s announced acquisition consolidates it as Europe’s second-largest company in the sector by market value after CapGemini of France.
Investors have not always supported the acquisition policy with unfettered enthusiasm. The company’s shares are below the level they were trading at this time last year and, although prone to intra-day volatility, they have remained stagnant over the past few years, underperforming CapGemini and Atos Origin, the other large European competitors.
Mr Read was phlegmatic on Monday in the face of a 7.5 per cent fall in Logica’s share price. “It was inevitable with a deal like this that you would get a lot of hedge fund activity,” he said. He pointed out that the shares had fallen on news of the Unilog deal before recovering as integration proceeded.
The more sceptical shareholders will now hope that the boundaries of the empire stay fixed for some time. “Investors tend not to forgive companies that overpay,” said Hans Slob, an analyst at Rabo Securities.
But Mr Read is unflinching in his determination to enter the global top 10 of IT services companies, dominated by US heavyweights such as IBM. “We’ve been on a journey,” he said.
“When I started with Logica 13 years ago there were 3,000 people. This will take it to 40,000.”
The company’s issues are not all related to scale. In Germany, Logica has only recently started to turn a profit, helped by the integration of Unilog’s profitable business in the country. There is no obvious quick-fix takeover target that would speed up an improvement.
Apart from high-end IT services in areas such as electricity trading and anti-money laundering for central banks, Logica also has a wireless division serving mobile phone operators, which many analysts fear does not make a good fit with the rest of the company and does not generate sufficient profits. Mr Read, though, is in no rush to sell.
Mr Read sees the threat to Logica and the wider industry coming from India, where companies such as Tata Consulting and Infosys are already larger than their Anglo-Dutch rival.
“It’s particularly refreshing to see a company like Logica expand beyond our shores,” said one person close to the deal yesterday. Observers are divided on whether this patriotic view makes sound business sense.
Logica in $1.7bn Swedish expansion (FT)
Friday, August 04, 2006
IBM Acquires MRO Software for $740M, but at What Cost? (AMR)
IBM is acquiring MRO Software in an all-cash transaction priced at $740M, or $25.80 per share. This is a 19.4% premium over MRO Software’s closing price of $21.60 on August 2; MRO’s stock price closed at $25.46 on the day the deal was announced.
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