Almost without being noticed Logica could be challenging Computer Associates for the title of most predatory company in the IT services field, with seven acquisitions since June 1998. The UK-based IT consultancy and systems integrator has already invested over 100m pounds ($62.5m) on takeovers and says it is prepared to spend a great deal more to dominate its field and drive its global expansion.
During the period between June 1998 and December 1998 Logica, bought companies specialized in telecommunications, ERP and banking, venturing as far afield as India in its search for talent. These include Aethos Communications Systems, a UK-based supplier of pre-paid calling systems for mobile operators; DDV Group, a Netherlands-based telecommunications consultancy; and FCC Folprecht, a Czech systems integrator to the financial and industrial sectors. There’s also Carnegie Group, a US-based customer management company with a special interest in telecoms; and Administra/CIM-Hardi, a Belgian IT consultancy, systems developer and enterprise resource planning implementer. And then there’s Quaestor, an NT-based retail banking company; Bangalore, India-based software house, Synectics Group; and Delog Conseil, a French banking, insurance and financial services sector IT consulting firm.
While legitimate concerns exist over Logica’s ability to integrate such a diverse range of companies, the company’s acquisition record has so far been largely successful. Its oldest acquisition, Axime (now Logica France) reported revenue growth of 33% in fiscal 1998, with margins increasing to 4% from a break-even position at acquisition. What’s not in doubt is that these acquisitions have allowed Logica to expand rapidly, not only adding skills and product sets but also improving its geographical reach.
Logica reported revenue of 473.0m pounds ($295.6m) for its last full year, to June 30, 1998, amounting to growth of 40%. Pre-tax profits also rose sharply to 41.8m pounds, up 49%. The UK remains Logica’s main market, accounting for 53.4% of 1998 revenues, ahead of continental Europe on 29.4%. Meanwhile, sales to the US made up 11.4% of the company’s revenues in 1998, an increase of 39% over the previous year. This performance has carried over into fiscal 1999 with Logica reporting revenue for the six months from June 30 to December 31, 1998 of 292.4m pounds ($182.8m), an increase of 35% over the same period in 1997. It now employs more than 6,400 people in 23 countries. Headcount grew 25% in FY1998 on a staff turnover of between 15%-20%.
Despite its success, Logica is in no mood to sit back and relax. Further acquisitions are central to the company’s ongoing strategy and Logica’s rate of acquisition spending is unlikely to slow. Large cash reserves and strong share performance put the company in a good position to raise more capital as required. The services provider has said it’s prepared to spend several hundreds of millions of pounds to boost its operations, especially in Germany and the crucial US market.
Acquisitions are the latest reflection of the strategy evolved by CEO Martin Read following his appointment in August 1993. Unlike many of its IT services rivals, Logica has played down its range of services and focuses instead on offering bespoke consultancy and systems integration services. It has also pushed hard its key vertical sector interests, especially in the fast growing finance, telecommunications and utilities markets that now make up over 70% of the company’s revenue. Most of these are carried out on a short-term basis, generally lasting around 12 months, with 45% taking the form of fixed-price contracts and the remainder costed on time and materials.
A further refinement of this strategy has been the development of a growing range of industry-specific repeatable solutions, principally for the telecommunications and utilities sectors. These use common software kernels but use front-ends that can be customized to suit the needs of specific customers. The approach has been greatly strengthened through Logica’s recent acquisitions.
Logica is undoubtedly benefiting from having the right products to exploit what have become rapidly expanding key markets. This is most apparent in the utilities sector where its main strengths are in customer services, asset management and competition infrastructure. The company is using the experience it gained in developing systems for the deregulated UK electricity industry to enter other markets where deregulation is beginning to take place. This includes the US where Logica is already assisting US-based New England Electric System (NEES).
In telecoms the company’s specific interests in areas such as customer care and billing, pre-paid services and short-messaging systems using both Logica developed and third-party solutions and this has left it well-placed in the buoyant mobile phone sector. The company is less solutions focused in the finance and retail sectors where its main service offerings center on consultancy, systems and software supply, bespoke development and systems integration.
Short-term repeatable solutions are not Logica’s only growth interest. The company is also actively seeking longer-term contracts in the fast growing field of applications management, as exemplified by its 5m pound ($3.1m) outsourcing tie-up with UK retailer Savacentre in May 1999. Despite the lower margins this provides this is part of a conscious move by Logica to invest in more stable sources of income, especially if faced with economic recession.
Logica has also profited from its high margin applications development, Y2K and EMU compliance services. Logica is not, though, making e-commerce a major service focus, unlike most of its contemporaries. It is keen to point out, however, that e-commerce work is an important part of many of its projects and that it will continue to increase its capabilities, as demonstrated by its April 1999 marketing and implementation alliance with US software provider Calico Technology.
With its focus on vertical sectors, Logica does not break out results for its service lines. However, in FY1998, software sales were estimated to represent between 15% and 20% of group revenue, EMU and Y2K work around 3%-4% each and applications management less than 10% of revenues.
