Where to now for Finsiel? Italy’s foremost and Europe’s eighth largest IT services company, is ruing the aggressive takeover of its parent company by Olivetti. The 2,059bn Lire ($1.15bn) services arm of communications giant Telecom Italia had pinned its hopes on the success of the earlier friendly merger with Deutsche Telekom expecting it to open up wider market opportunities for it. Now Finsiel faces an uncertain future in the hands of a company with a checkered history in IT services. The most likely possibility is that Olivetti will sell off Finsiel as surplus to requirements and may not wait long in doing so, having already shorn off its previously held IT services interest, Olsy, to Wang in 1998. US-based EDS and Germany’s Siemens have both been mentioned as possible buyers.
The attraction to fellow services companies is obvious. First is size. Finsiel is the eighth-largest European-based IT services company and also has a broad skills base. Second is location. Finsiel has exceptional penetration in the Italian IT services market. If any problem exists in attracting a buyer, it is likely to be the cost of integrating the somewhat parochial Finsiel into its existing infrastructure. Whatever happens, Finsiel’s days as the largest Italian owned IT services vendor, and Italy’s place as a serious player in the global IT services space, look numbered.
Finsiel is best known as the seemingly incumbent provider of IT outsourcing services to Italian central and local administration. The company now offers a range of outsourcing, systems integration, development and consulting services including ERP, euro and year 2000 conversion to customers in the public sector, banking, telecommunications and transportation industries through a network of 25 specialized companies.
The Olivetti takeover comes at a time when Finsiel has been coming under increasing pressure both in and out of its home market. Finsiel has spent the last three or four years diversifying its service lines and attracting major customers in the transport, telecommunications and banking sectors, albeit still with a focus on its domestic market. However, the company has also been increasing its integration with Telecom Italia, leveraging its parent’s reach to expand its European reach and, most notably, to enter the nascent South American market.
Finsiel currently has around 8,200 employees. Telecom Italia owns 77% of the company. Its future has long been inextricably linked with the ongoing tug-of-war for the control of its parent, Telecom Italia and the company’s plans to expand its geographical activities and its interests in developing technologies, such as customer relationship management and e-commerce, should now be considered to be temporarily on hold. Finsiel itself favored the merger with Deutsche Telekom, no doubt believing that this would give it leverage to enter new global markets. However, prior to the launch of this counter-bid for Telecom Italia, all the indications were that Finsiel would be sold off as part of a three-year development plan by Telecom Italia to outsource ‘peripheral’ businesses. Selling Finsiel was also considered in part to deflect the Olivetti bid.
As part of Telecom Italia, a detailed breakdown of Finsiel’s financial situation is unavailable. Finsiel as a whole closed the financial year to December 31, 1998 with revenues of 2,059bn Lire ($1.15bn at an exchange rate of 0.00056), resulting in a 9% increase over the 1997 total of 1,849bn Lire ($1.11bn at the then exchange rate of 0.0006).
Despite the company’s efforts to expand its overseas operations, 95% of Finsiel’s 1998 revenues were sourced within Italy and there are limited opportunities for the company to continue growing its domestic revenues. At the same time it cannot offer the consistent global roll-out capability that multinational companies are now demanding. Add all these factors together and it is hard to accept that Finsiel would have remained a major force in European IT services, even if Telecom Italia had not been taken over. It is neither competitive nor secure enough and now faces an uncertain future under new ownership.
