Consolidation in the IT services sector has gathered momentum in recent weeks, driven by growth in IT outsourcing, telecommunications and business process management; robust demand from important verticals such as government and healthcare; and low company valuations.

The highlight of Europe’s recent mergers and acquisitions activity, however, has been the emergence of one particularly acquisitive consultancy, Finland’s TietoEnator, as a substantial player in the Nordic region.

TietoEnator, which had already completed six acquisitions earlier in 2002, added three more to that list: Ericsson InfoTech, Ericsson’s Sweden-based software development and maintenance unit; Enterprise Systems, a healthcare services company; and Araneum, a Danish web development consultancy.

TietoEnator paid SEK500 million (EU55m) for 860 Ericsson employees – taking TietoEnator to more than 3,600 staff. Under the terms of the deal, TietoEnator also inherited a two-and-a-half year agreement to develop and maintain software for Ericsson’s fixed and mobile networks. The Ericsson order book is estimated to be worth some SEK800 million (EU80m) to TietoEnator a year. TietoEnator bosses have said they are considering buying other units from Ericsson, which is in the midst of a reorganisation.

TietoEnator bought Enterprise Systems primarily for its customer base in the Danish healthcare and pubic sectors. The target company also develops software for storing clinical data. Araneum, for its part, appealed to TietoEnator because of its public sector and multinational clients.

Elsewhere, there was further evidence of major consolidation in IT services

UK IT services specialist Logica paid EU3.6 million for eGlobal Pacific, an Australian provider of services for German software giant SAP’s products. Logica wants to provide SAP services globally. Separately, Logica has been in merger talks with UK rival CMG. A combined company would be Europe’s biggest IT services company. A merger could help it compete with mobile equipment giants such as Ericsson in the mobile multimedia messaging software and services market, says Julian Hewitt, an Ovum analyst.

Systems and IT services giant IBM acquired the application services division of EADS Matra Datavision for an undisclosed fee. IBM, which at the same time completed its EU3.5 billion acquisition of the consultancy division of PricewaterhouseCoopers in October 2002, wants Matra Datavision for its product life cycle management capabilities.

Israel-based Crystal Systems Solutions, meanwhile, a supplier of application migration services away from legacy systems, acquired fellow Israeli application development tool vendor Liraz Systems for EU7.7 million in October 2002. Crystal wants to combine its legacy system integration services with Liraz’s application development tools, enabling businesses to extend their applications to external partners and deploy web services.