IT firm Sema is still in negotiations over a possible takeover.
Anglo-French IT firm Sema is currently in takeover talks, following a disastrous recent performance. It has issued two profit warnings in the last six months, whilst its shares have fallen from 1350p in September to 251p in January. However, takeover speculation has this week driven the shares up, to 441p at close yesterday.
Sema’s profit problems stem from one major bad deal. In March 2000, Sema bought US telecoms billing software provider LHS for $4.7 billion. In retrospect, it’s easy to see Sema overpaid hugely, buying into the telecoms sector right at the height of the TMT boom. Even if the acquisition had gone smoothly, the correction would inevitably have hit Sema’s value. But regulators delayed completion until the end of July. The uncertainty and the delay in integrating the companies disrupted the business and LHS’ Q3 sales plummeted.
Although there are problems with its IT outsourcing business, Sema would still be an attractive prize. It’s got a strong position in eBusiness integration (enabling companies’ existing IT systems to handle B2C and B2B transactions), whilst its consulting and systems integration operations are going well.
Many commentators believe US consultancy Schlumberger is the most likely takeover candidate. It has a strong position in smartcards, which could be combined with Sema’s systems integration expertise. Since Sema is particularly strong in the travel sector, there is a great deal of potential to bring smartcards in. However, Schlumberger is fundamentally an oil company. Three quarters of its revenue and over 95% of its profits come from oil consultancy. The synergies between the businesses would not really be very high.
An IT services company could well be a better suitor. Logica would make a particularly good fit for Sema, with high synergies between their businesses – and Logica hasn’t been shy about making acquisitions in the past. However, Logica is only worth around $12 billion itself. Buying Sema would be a major risk – and Sema’s recent record is unlikely to fill Logica with confidence.
