Amid record August temperatures, things were hotting up even inside the air-conditioned Paris headquarters of Cap Gemini Ernst &Young (CGE&Y), Europe’s biggest IT services company. Rumours were sweeping through the close-knit IT services community that systems and services giant Hewlett-Packard (HP) was preparing a multi-billion dollar bid for the French company. HP’s efforts to buy a major services company had been thwarted time and again. With CGE&Y, its long search seemed to have ended.
Unfortunately, Carly Fiorina, HP’s CEO, did not see it that way. On 20 August, she sought to draw a line under the affair, telling her opposite number at CGE&Y, Paul Hermelin, that she was not interested in his company, “because you are too strong in consulting”. CGE&Y’s critics speculated, mischievously, that she really thought the company was too weak in outsourcing.
In any case, Hermelin had another deal in mind. One week after the Fiorina meeting, CGE&Y confirmed it was in merger talks with Transiciel, a French rival. By mid-October, an all-share EU244 million takeover had been agreed by the directors of both companies. The deal is subject to shareholder approval. But it seems certain to go ahead, given the backing of Transiciel’s 37% shareholder, company chairman Georges Cohen.
The deal has disappointed some analysts. Transiciel’s strength lies in the French market for systems integration – a sector that has ground to a halt in recent years. At the same time, more and more companies have tried IT outsourcing and business process outsourcing as a means of cutting costs. “Despite the uncertain economy and resistance at some companies, outsourcing of IT infrastructure, applications and business processes is a growing market in Europe,” says Richard Peynot, a Giga analyst, “while consulting and integration are significantly declining.”
To its critics, CGE&Y is strong in the wrong disciplines. It should have been looking elsewhere during its acquisition hunt, they say. But the opportunities, in Europe at least, are getting scarce. In the last 12 months, Steria has acquired Integris, Logica has merged with CMG and, most recently, one of CGE&Y’s biggest European rivals, Atos Origin, bought another, SchlumbergerSema, for EU1.3 billion.
One of those deals offers some cause for hope for Hermelin as he faces down his critics. Similar reservations were expressed about the Logica-CMG merger, but it has been considered a success so far.