5 November 2002 Services company Logica is to acquire rival CMG in an all-share deal valued at about £510 million (€795.9m).
The acquisition will make it one of Europe’s top-three largest publicly-listed IT services company, with combined revenues of more than £2 billion (€3.1bn). Logica shareholders will own 60% of the new company, LogicaCMG.
The company said it expects to complete the deal before the end of 2002.
Logica claims the acquisition will strengthen its position in a number of emerging markets, including mobile multi-media messaging, wireless Internet and mobile payments. It also cited both companies’ customers in key sectors, including the public sector, telecoms, financial services, utilities and transport.
Logica said it expects to achieve annual cost savings of £60 million (€93.7m) before the end of 2004 as a result of the merger of the two companies’ operations.
For the year to the end of June, Logica reported disappointing revenues, down 3% to £1.1 billion (€1.7bn) and a pre-tax loss of £234.8 million (€366.5m). Revenues for CMG’s last full financial year were up by 13% to £920.4 million (€1.4bn), but the company reported pre-tax losses of £588.8 million (€919m), largely as a result of costs arising from a string of acquisitions in recent years.
Cap Gemini Ernst &Young is Europe’s largest publicly-listed IT services company with annual revenues of €8.4 billion.
Analysts cautiously welcomed the deal. “Although there is considerable cross-over in the high-end mobile telecommunications businesses of both companies, a merger could help them compete with mobile equipment giants, such as Ericsson, in the mobile multi media messaging services market,” said Ovum chief analyst Julian Hewett.
However, Andrew Parker, a senior analyst at Forrester Research disagreed. “Both companies have duplicate skill sets in the systems integration and IT implementation sectors where there has been a shrinkage in demand, especially among telecommunications and financial services companies,” he said.
He added: “There are also cultural issues to be resolved because Logica is viewed as more forward-thinking and better at leading innovation, compared to CMG.”
The deal is the latest in a round of consolidation in the IT services sector. In October 2002, systems giant IBM completed the acquisition of the consultancy division of accountants PricewaterhouseCoopers (PwC) for $3.5 billion (€3.5bn).