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M&A IMPACT: ACQUISITION FEVER IN FRENCH IT SERVICES

French IT services house Groupe Focal’s acquisition of two smaller IT services companies, Axe 21 (with its subsidiary AFI) and Celtis Technologies last week, is only the latest of a flurry of such announcements in France’s IT services sector. The deals came only weeks after Paris-based GFI Informatique announced three acquisitions in one go, two of which were in France and a third in Italy. GFI bought complete equity control of Roissy- based Groupe Gallius, a company specializing in Oracle implementations and object-oriented technologies, and Paris-based Ceacti, which offers SAP, Oracle and PeopleSoft implementations. While in Italy, GFI entered into an agreement to acquire 70% of the Atel Group from Milan, which specializes in managing systems and networks using Tivoli software, as well as internet and intranet technologies.

These deals also came hot on the heels of other acquisitions. The Groupe Atos bought out its US partner, Stratus Computer’s 50% share in banking software and services company Astria SA. And Systems integrator Groupe Euriware, acquired a controlling 51% stake in Product Edge Associates (PEA), a consultancy specializing in supply chain and product data management.

Meanwhile, a smaller services company, Lyon-based Cegid Solutions Informatiques, made it onto the short list, only to see its hopes frustrated, for the acquisition of CCMX, a software house belonging to the insolvent state bank Credit Lyonnais (CL). The CL group is currently being carved up for privatization, but Cegid was passed over in favor of the investment company Apax Partners, though insiders say the deal is still not done. Last week, a committee of CCMX staff rejected the plan to sell the company to Apax, and Cegid may yet get another bite of the cherry. In the meantime, Cegid has bought a controlling 59.86% share of a much smaller outfit called Servant Soft, and is still offering to buy the rest.

In every case, the buyer declined to reveal the amount paid, publishing only the revenues the company or companies being bought had registered in their previous fiscal year leaving the market to make its own estimates.

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Obviously, each acquisition obeys different strategic objectives that depend on the particular concerns of the buyer and the nature of the acquired company. In some cases, the target is the skills of the outfit being bought, which complement or round out those of the buyer. In other cases, it is the client base in a particular sector that the acquirer wants to enter. In yet others, the objective is international expansion.

GFI in particular has made both national and international acquisitions a central part of its strategy for growth, as its president, Jacques Tordjman, readily admits. I ‘restarted’ GFI Informatique in 1995, after I bought part of the business and the right to the name from EDS, which had acquired the company in 1992, he says. As part of his first three-year plan (1995-97), he made nationwide coverage one of his objectives and has made some 30 acquisitions to the end.

His second three-year plan (1998-2000) extended the coverage to all key European markets, which took the acquisition trail beyond France’s borders. Last year, GFI bought three companies in Spain (Arcissa, Arcitel and AVT) and one in Switzerland (Nyon-based Planet). During the first three-year plan, the company acquired part of the Belgian business of a much larger services concern – the Anglo-French Sema Group.

Only in Luxembourg and the UK has he started up subsidiaries from zero, and, he says, he’s now eyeing the German and Dutch markets for potential acquisition targets. Torjman says the company, which is quoted on the Second Marche in Paris, has so far carried out all these purchases with cash, but is considering stock-based acquisitions from now on.

But as the other acquisitions indicate, GFI is by no means alone on the trail. Even the large French IT services admit to being on the look-out, both at home and abroad, for companies to buy.

Cap Gemini board member Paul Hermelin, for example, has revealed that the group is considering a US listing, specifically in order to leverage its business in that market and give it a stronger share price through which to make stock acquisitions.

At Sopra SA, vice president Jean Mounet, admitted that the group is looking for systems integrators present in large accounts, particularly in the target sectors of manufacturing and utilities, as we’re stronger in banking. In the UK we’re open to all opportunities, but we’re especially interested in expanding in the banking sector, he said, with likely targets being medium-sized service companies with a staff of between 200 and 1,000 people.

At Sema, senior vice-president, Francois Dufaux, says the group is always looking for potential acquisitions and would be particularly interested in something in the US – a market it was only able to enter since September 1997 when Paribas reduced its shareholding in the company (banks are not allowed to compete in other sectors under US law).

Would the London- and Paris-quoted group consider a US listing like Cap to underpin such an acquisition strategy? No, but we don’t need it to make an acquisition, because we have enough funds to leverage a purchase, even of something big, he replies, pointing to the group’s sale, last year, of its share of the joint venture with British Aerospace, formerly known as BAeSema, as the origin of this generous war-chest.

Dufaux, who is also president of the French trade association for IT services, the Chambre Syndicale des SSII, questions whether the spate of acquisitions really is a French phenomenon, arguing that we see acquisitions all over the place, every day.

Nonetheless, he does recognize, as does the president of Sema, Pierre Bonelli, that consolidation is coming in the sector. The Chambre has 20,000 member companies, he points out, of whom 19,000 are small outfits, with as many as 300 having been founded over the last three years. Clearly, there are plenty of targets, and both he and Bonelli believe that the concentration will be transnational rather than just national. IBM must have bought around 20 companies in France over the last few years, including one, Axone, from Sema back in 1992.

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CBR Staff Writer

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