Logica Group Plc yesterday accompanied its first half figures to December 31 – pre-tax profits 29% ahead at UKP5.4m on turnover up 17% at UKP58.0m – with proposals for a substantial US acquisition in the shape of publicly-quoted – on the American Exchange – Data Architects Inc, for $14 a share cash, about $45m all told. If the tender offer is successful, Logica will raise the money by way of a two-for-nine rights issue at 236 pence a share, a healthy discount on the 280 pence at which the shares were trading before the bid was announced. Headquartered in Waltham, Massachusetts with offices in New York, San Francisco, St Louis, Toronto and London, Data Architects employs some 340 people and was founded in 1967. It reported net profits for the year to November 1987 up 42% at $2.3m on turnover up 28% at $34.7m, and turnover has more than doubled since 1984, while net profits have almost quadrupled. Progress since 1983 has been very steady, but in that year it reported a loss of $600,000, and sorting out the problems meant that 1984 turnover was static compared with 1983. The company designs and develops custom applications software and provides related consultancy, and also develops proprietary packages in the banking and telecommunications fields, 43% of its business coming from the latter activities in 1987. Its two most significant products are the Bess Bank Electronic Support System, which automates the wireroom, funds transfer and related operations for large financial institutions; and the BankMaster decision support program, which is designed for interest rate risk analysis. On the custom side of the business, its speciality is serving the life assurance industry, and some may be made to feel a little jumpy at the fact that just one client, New York Life Assurance Co, accounted for 38.8% of Data Architects’ total turnover last year. New York Life has been a customer for only four of the 20-odd years Data Architects has been around, but its current relationship is expected to extend into the early 1990s. If that rug were suddenly to be pulled, it would leave a big hole in the company’s business, but Logica clearly hopes that by putting more of its own products through Data Architects in the US, the dangers of over-dependence on one customer will be reduced. By no means a knock-out Logica also looks to take some of Data Architects’ products into markets where the company is not now present, notable ones being continental Europe, where Logica is strong in Holland, and the Far East, where it has a presence in Hong Kong. Logica intends to rename the US company Logica Data Architects and to merge its US operations into it as soon as possible. It is clearly by no means certain that Logica will get the field to itself: although Logica has been granted an option on the directors’ own shares and on authorised but unissued shares that add up to 38% of the total, fully diluted, its offer is conditional on it getting 75% acceptances rather than a simple majority, and the company looks an attractive acquisition and may well attract counter-bidders. Its offer is by no means at a knock-out price: Data Architects shares closed at $12.625, down 12.5 cents, on Wednesday, so the premium in Logica’s $14 is hardly generous. The move looks the right one for Logica, if it can pull it off. Despite thoroughly justified nervousness in the City about UK high-tech companies dipping even a toe in the transatlantic waters, a company of the size and with the ambitions of Logica simply can’t fulfil its potential unless it has a substantial presence in the US market – and the only way to achieve this with medium rather than super-high risk is to acquire a solid company with a management that seems compatible. Logica has had to cut back its unaided efforts to penetrate the US market – and indeed did make one very ill-advised acquisition in California, but that was a hardware company, and the less said about Logica’s hardware adventure the better. Data Architects is just about the right size for Logica’s US needs, but on the face of it, Logica will be
lucky to land the company without having to pay a bit more for it – something it says it is reserving the right to do.