With record 1998 results, an expanding international business and an opening into the important US market through the recent merger of its parent Daimler-Benz with fellow car builder Chrysler Corp, Germany-based debis Systemhaus (debis IT Services, outside Germany) has its sights set on joining the top flight of global IT service providers. Yet rumors suggest that the newly-formed DaimlerChrysler may sell its flourishing DM4.4bn ($2.4bn) IT services unit with the hot favorite to purchase it being German telecoms leader Deutsche Telekom.
Rumors first surfaced in early May 1999, when German newspaper Die Welt reported that Deutsche Telekom was willing to pay DM11bn ($6bn) for debis. Both DaimlerChrysler and Deutsche Telekom denied the reports. A further report in the German trade press upped the Deutsche Telekom bid to DM17bn ($9.3bn). Both parties again declined to support the speculation. This was not the first time that a sell-off of debis has been suggested. During 1998, debis was touted as a possible takeover target for services giant EDS Corp, itself a former subsidiary of a large automotive company, but this possibility would have created conflict given EDS’ ongoing relationship with General Motors.
The sense in any move to sell debis Systemhaus has to be questioned, both from the point of view of rising profits for DaimlerChrysler and the cost to potential suitors. In only nine years of activity, debis has become a DM4.4bn ($2.4bn) operation, showing revenue growth of 39% during the year through December 31, 1998. While historically much of this growth has been attributable to the captive business provided by Daimler-Benz, debis is now actively trying to reduce this dependency by expanding its international interests. Revenue growth outside Germany was up 97% in 1998 to DM1.1bn ($600m), or 25% of the total, while non-DaimlerChrysler revenues increased 49% to DM3bn ($1.6bn), making up 69% of the total. Debis does not publish figures for net profit but the company said it had exceeded the group target of 15.5% in terms of return on net assets (operating profit/net assets).
Outsourcing services make up the largest business domain for debis, accounting for 67% (DM2.9bn; $1.6bn) of total revenue in 1998. This is followed by software development and integration services, which constituted 28% (DM1.2bn; $720m) and IT consulting which made up the remaining 5% (DM213m; $115m). Of these, consulting and outsourcing were fastest growing at 57% and 52%, respectively, while systems services lagged behind on 15%. These services are supplied to a range of vertical sectors of which manufacturing remains the largest (37% of revenue) ahead of financial services (18%) and telecommunications (13%).
Debis’ growth looks set to continue. First-quarter 1999 figures have reportedly grown 30% over last year (although full details are unavailable) and the company expects 25%-30% revenue growth over FY1999, taking sales to around the $3bn mark. The company also intends to source around one-third of revenue outside of Germany in 1999.
One area debis is making a special focus for expanding its international business is desktop services. These constituted 36% of all outsourcing revenue during 1998, growing 93%, to DM1.1bn ($580m). This growth has been strengthened by the December 1998 acquisition of French-based Groupe Spring which also had operations in Switzerland, Austria, Italy, Germany and the Czech Republic. Debis’ eastern European desktop service operation was also boosted by the November 1998 creation of a joint venture, debis Oasa IT Services, with Czech Republic-based Oasa Computers. The company is reported to be on the lookout for further European acquisitions as it attempts to grow desktop services revenue to around DM1.7bn in 1999.
Debis’ international ambitions will undoubtedly be further aided by the merger of Daimler-Benz with Chrysler, which opens up chances in the North American market. The first fruits of this opportunity came with the December 1998 announcement of a five-year, $70m contract to provide systems and support to DaimlerChrysler’s Portland, Oregon-based heavy truck manufacturer, Freightliner.
Further US contracts are expected in what may prove to be an effective profile building exercise for debis, getting around many of the problems of market penetration faced by fellow European-based IT service providers Stateside. The tie-up with Chrysler may even help debis overcome the generally inward-looking nature of German IT services companies, helping it in its wider global ambitions. DaimlerChrysler is reportedly looking for a services partner for debis in the US to further increase its presence. It says it has not ruled out the possibility of an initial public offering for debis to finance such an alliance, in which the company would take a majority stake.
The growth in debis’ international operations is reflected in the 102% increase in staff numbers outside Germany in 1998, making for a head count of 3,167 out of a total of 13,325. This was some ways ahead of the company average for staff growth of 40%. Staff numbers are expected to increase by 3,000 in 1999, taking the total to over 16,000.
