London, UK-based LogicaCMG has agreed a deal to transfer the operation to Atlantic Bridge Ventures, an investment vehicle backed by US industrial holdings group Access Industries and European vehicle International Investment & Underwriting.
The Telecoms Product division was the driving force behind LogicaCMG’s growth and stock market momentum at the turn of the century, as it emerged as one of the first companies to adapt text message processing and payments software to handle the new demands of multimedia messaging.
However, LogicaCMG has found it increasingly tough to sell against telecoms equipment manufacturers such as Ericsson and Nokia, which bundled messaging and payment systems with other network infrastructure, and sold them to operators at highly competitive prices.
Indian software services vendors such as Wipro Technologies and Tech Mahindra are starting to make their presence felt in the telecoms infrastructure software market, and the acquiring investment company may look to handle more of the Telecoms Products division’s R&D work from low-cost sourcing locations to further improve its profitability.
While LogicaCMG has picked up a large number of contracts with second and third-tier mobile operators, particularly in regions such as eastern Europe and Central America, it has not been as successful selling major software deals to the industry’s largest players.
That said, LogicaCMG has improved the performance of the Telecoms Products division in the last two years, which is reflected in the price tag that Atlantic Bridge is paying, which works out at 11.5 times its full-year 2005 EBITDA.
The target operation made an operating profit margin of 1% on revenue that grew 2.5% to 123m pounds ($162m) in the first six months of 2006, driven almost exclusively by a 50% increase in sales of unified messaging systems.
Of the 123m-pound ($162m) total, 60% came from messaging systems, with 20% from payment and billing systems and around 10% apiece from unified communications, and multimedia applications. The division has 1,700 employees across 22 countries and is expected to make an adjusted operating profit of 10m pounds ($13m) on sales of 260m pounds ($342m) in 2007.
LogicaCMG’s recent M&A strategy has underlined that its focus is its core IT services business, including the $1.2bn purchase of French player Unilog in 2005 and the $1.7bn takeover of Swedish vendor WM-data last year. Including both of these acquisitions, the Telecoms Products division accounted for just 6% of full-year 2005 revenue.
The company also emphasized that the disposal did not mean it would stop providing consulting, integration and outsourcing services to telecoms operators, a business that brought in 225m pounds ($296m) in revenue in 2005.
Of the proceeds, LogicaCMG plans to spend 55m pounds ($72m) on reducing debt, return a total of 130m pounds ($171m) to its shareholders through a share buyback program, and use the rest to buy out minority interests in WM-data and Edinfor.
