Atos Origin’s just announced acquisition of Siemens IT Solutions & Services (SIS) will create a new giant in the European IT services marketplace when it closes pending regulatory approvals. And per Everest Research Institute’s (ERI) assessment, the acquisition will be a boom for the two companies. ERI gives the transaction a “thumbs up” for five reasons:
Enhanced scale to compete in mega deals – The combination of Atos’ €5.0 billion revenues and SIS’ €3.7 billion revenues will result in a much more formidable competitor in the European IT marketplace. The increased operating scale, large deal experience and the enabling infrastructure should enable Atos to better compete in larger deals that may earlier have been out of its reach.
Pan-European footprint – Atos’ and SIS’ geographic market focuses are complementary, and will give the combined entity a strong pan-European footprint. Atos’ leading position in France and Benelux will be bolstered by SIS’ position in Germany, Central Europe and the Nordics.
Formidable IT consulting and systems integration capability – The combined entity will attain approximately 33 percent of its revenues, or roughly € 2.9 billion, from symjstems integration and consulting. Boosted by Siemens’ legacy strength in systems integration, the new organization will have 30,000 professionals – including 7,000 SAP specialists – making it one of the largest consulting and systems integration providers in Europe.
Cross-sell opportunities given limited customer overlap – Analysis of the companies’ client portfolios indicates limited overlap, thereby enabling cross-sell and up-sell opportunities. The enhanced European footprint should also give Atos the ability to increase its business with existing European clients.
Credible global delivery capability – SIS will provide Atos with additional offshore delivery scale in India, and will improve the firm’s ability to provide global delivery to its clients. This should be particularly helpful in Europe, as the economic crisis is expected to accelerate global sourcing. After the acquisition closes, Atos will have 7,900 employees in India (approximately 10 percent of its total headcount.)
All this said, although we view the improved capabilities of the combined entity as optimistic, the projected financials are disappointing and lack ambition. The company is guiding growth in the one-to-four percent range annually for the next three years. The target operating margins of seven-to-eight percent by 2013 are higher than the current margins of the two companies and peer European companies, (e.g., Capgemini and T-Systems), but meaningfully lag those of global providers (e.g., IBM, Accenture.) Even achieving these targets will be a challenge, and future success hinges on Atos’ ability to smoothly drive the complex integration, ensure a quality transition for its largest client (Siemens) and, most importantly, maintain relentless focus on existing clients and new business development.
Will this acquisition prove advantageous? Only time will tell.
ERI has just completed a Breaking View Point paper on Atos’ acquisition of SIS. Those interested in learning more about the deal, the geographic market focus, the scale, the business mix and the global delivery footprint can gain access to the paper here.