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NelsonHall Industry Insight: April 4, 2011
The following extracts are commentary and insight from NelsonHall Industry Insight, NelsonHall analysts weekly views on key industry developments that impact your sourcing. Register to receive your copy weekly
Apr 01, 2011 | Mergers and Acquisitions by Rachael Stormonth
industry: Energy
Wipro Technologies is to acquire the global Oil & Gas IT services practice in SAIC's Commercial Business Services business unit for an all cash consideration of ~$150m. Approximately 1,450 employees are expected to transition to Wipro from units in the US, the U.K., France, India and the Middle East.
The unit being acquired provides consulting, system integration and outsourcing Services to oil companies and has industry-specific domain capabilities in the areas of digital oil field, petro-technical data management and applications services addressing the upstream segment.
Analyst comments:
Wipro identified Energy, Natural Resources & Utilities as a high-growth SBU in 2009 and indicated to NelsonHall a year ago that inorganic growth was on the cards.
In FY 2011 year-to-date the unit has been Wipro's second fastest growing vertical (after financial services): NelsonHall estimates revenues from the unit were $467m in CY 2010, with annual run-rate for the quarter ended December 31, 2010 reaching ~$532m. The business being divested by SAIC generates revenues of ~$188m, and so will significantly boost Wipro's revenues from this SBU. SAIC continues to focus on energy sector market segments such as smart grid, which are also focus areas for Wipro (the head of its North American smart grid practice came from SAIC).
This is a great acquisition for Wipro, who has bought the unit for less than 6 x EBITDA, and will clearly strengthen its capabilities in the upstream space: until a major win with BP in 2009 to provide ADM services for BP's Fuels Value Chain, most engagements had been with utilities and distributors.
Wipro has been a relatively active acquirer, although it has been quiet in the last two years. In 2005-7 it pursued a "string of pearls" acquistion strategy (8 deals with an average price of <$50m), and then made two shrewd larger acquisitions: Infocrossing (at $600m the largest acquisition thad been made by an Indian IT services vendor, it signifciantly broadened its U.S. IT infrastructure capabilties), and Citi Technology Services Ltd., for $127m (which included a 6-year MSA of at least $500m).
Expect Wipro to complete other acquisitions to enhance vertical capabilities as it looks to regain its position as a Top 3 Indian provider, and plays catch up in terms of revenue growth with TCS, Infosys and Cognizant.
From a SAIC perspective, the company has highlighted it did not have the presence in India, nor did it have the willingness to develop such an Indian presence to growth its oil & gas operations. With this sale, SAIC is halving its commercial sector activities and is become more and more a U.S. government pure-play.
Mar 30, 2011 | Contracts by Rachael Stormonth
industry: Other Discrete Manufacturing
ICG Commerce has been awarded a 5-year indirect procurement BPO contract by U.S. headquartered building materials manufacturer Owens Corning.
Services to be provided by ICG Commerce include sourcing and category management in the areas of marketing, travel, legal services, finance (audit services), consulting services, rentals/leasing, and HR (contingent labor and benefits).
Analyst comments:
The contract between ICG Commerce and Owens Corning was signed recently, but it has taken over a year for the client to make the decision, having gone from sole source discussions with ICG Commerce to a competitive tender process.
ICG Commerce will initially be supporting Owens Corning's operations in the U.S. (where its business has been impacted by the downturn in the housing market), but there is potentially the oppportunity for expanding the geographies in scope and also the categories, thereby increasing the level of spend being managed by ICG Commerce on behalf of the client five fold.
The spend categories in scope are all within the corporate functions; this contract illustrates a client looking to a BPO services provider to help its procurement function move to the next level and build stronger relationships with other corporate functions.
Mar 28, 2011 | Contracts by Rachael Stormonth
industry: Federal/Central Government
Steria has been awarded a 5-year applications development and maintenance contract by the U.K. Ministry of Justice (MoJ).
Services to be provided by Steria as part of a wider shared services program, include development of an Oracle E-Business Suite R12 system that will serve as a common operating platform supporting HR, payroll ansd procurement operations across the department and, in future, its associated agencies. These include the Courts & Tribunals Service, HM Prison Service and the MoJ's s head office, altogether having ~80,000 users. The Ministry is looking for the program to deliver savings of ~£28m per annum by 2014.
The MoJ has also selected:
- o Accenture, who is the lead contractor and systems integrator, with a £22m award
- o Savvis, providing hosting services on an infrastructure-as-a-service basis in a £14m deal.
Analyst comments:
The selection of Steria is unsurprising: Steria has been providing IT services to the MoJ for over 15 years, including to the National Offender Management Service (NOMS), the Land Registry, and the Criminal Cases Review Commission (CCRC). This is Steria's third significant shared services contract in the public sector, following its BPO JV with the Department of Heath and a BPO contract with Cleveland Police Authority which includes the development of a back-office shared service capability.
For Accenture, this marks its first high-profile systems integration announcement in the U.K. central government sector for some time.
The selection of Savvis, a U.S. headquartered hosting provider with 2010 revenue of $933m (of which $315m from managed hosting services), is interesting. Savvis generates over 81% of its revenue from the North America (EMEA accounts for 14%) but is clearly targeting cloud opportunities in the U.K. public sector: the company also announced today its 'Government Wide Service' (GWS) IaaS platform targeted at U.K. government departments and third-party suppliers, which, it claims, could act as a SaaS marketplace for the government.
(NelsonHall has recently published an updated 68 page Key Vendor Assessrnent on Steria: for details contact paul.connolly@nelson-hall.com)
Mar 24, 2011 | Financial Results by John Willmott
Accenture has announced fiscal Q2 2011 revenues, for the period ending February 28, 2011, of $6,053.6m, an increase of 17% (18% in constant currency) year-on-year.
Fiscal Q2 2011 EBIT margin increased from 12.6% to 12.7% year-on-year.
Fiscal Q2 2011 revenues (and revenue growth) by service type were:
- o Consulting & systems integration $3,509.5m (+20%) (+20% in CC)
- o Outsourcing $2,544.1m (+13%) (+15%).
Fiscal Q2 2011 revenues (and revenue growth) by operating group were:
- o Products $1,373.6m (+14%) (+15% in CC)
- o Communications & high-tech $1,274.4m (+15%) (+16% in CC)
- o Financial services $1,265,6m (+18%) (+20% in CC)
- o Resources $1,171.0m (+26%) (+25%)
- o Health & public service $964.6m (+13%) (+14% in CC)
- o Other $4.3m.
Fiscal Q2 2011 revenues (and revenue growth) by geography were:
- o Americas $2,675.5m (+21%) (+20% in CC)
- o EMEA $2,591.6m (+9%) (+14% in CC)
- o Asia Pacific $786.6m (+34%) (+24% in CC).
Fiscal Q2 2011 bookings were $6.98bn:
- o Consulting & systems integration $3.8bn (+12%)
- o Outsourcing $3.18bn (+2%).
The primary areas of activity within consulting & systems integration bookings were reported to be:
- o Management consulting - finance & performance management, supply chain optimization, customer service effectiveness, and sales & marketing transformation
- o Technology consulting - application modernization and infrastructure virtualization
- o Systems integration - ERP integration in support of globalization, M&A, and regulation together with support for implementation of e-/m-commerce.
Fiscal H1 2011 revenues increased 15% (16% in CC) to $12,099.3m. Fiscal H1 2011 revenues (and revenue growth) by service type were:
- o Consulting & systems integration $7,077.4m (+17%) (+18% in CC)
- o Outsourcing $5,021.8m (+11%) (+13%).
Fiscal H1 2011 revenues (and revenue growth) by operating group were:
- o Products $2,769.7m (+15%) (+16% in CC)
- o Communications & high-tech $2,558.9m (+13%) (+14% in CC)
- o Financial services $2,366.7m (+18%) (+20% in CC)
- o Resources $2,299.3m (+21%) (+21%)
- o Health & public service $964.6m (+13%) (+14% in CC)
- o Other $8.4m.
Fiscal H1 2011 revenues (and revenue growth) by geography were:
- o Americas $5,308.8m (+20%) (+19% in CC)
- o EMEA $5,229.3m (+6%) (+12% in CC)
- o Asia Pacific $1,561.1m (+31%) (+22% in CC).
For fiscal 2011, Accenture has increased its revenue growth (in constant currency) expectations from 8%-11% to 11%-14%. The company also expects a modest increase in EBIT margin to 13.6%-13.7%.
Analyst comments:
Overall this is the fourth quarter running of positive constant currency revenue growth for Accenture, with real growth in each quarter exceeding that in the previous quarter by at least 4%.
This trend seems set to continue in the coming quarter judging by Accenture's bookings in fiscal Q2 2011. While overall outsourcing bookings were relatively unchanged year-on-year, BPO bookings were up significantly and Accenture reported its strongest consulting & systems integration bookings for 10 quarters. This projects a very positive environment for process improvement-oriented offerings with organizations using both consulting and systems integration and, increasingly, BPO to adopt new business models which are more cost-effective , more globalized, and have greater customer impact, for example by deploying cross-channel customer service and and e- and m-commerce.
While Accenture's positioning within this transformation agenda depends on a higher presence and retention of expensive local domain expertise than some of its competitors, and the company has yet to achieve the levels of profitability of the leading Indian vendors such as Infosys and TCS, Accenture continues to ramp up its GDN staffing at a faster rate than onshore consultants.
In addition, Accenture recognizes the need to continue to move to address the emerging domestic markets south and east of its current major markets. Accenture's Indian competitors are less evident in many of these markets with IBM often already strongly entrenched on a platform of hardware sales.
