I've been collecting anecdotal evidence of how and where the economic downturn is affecting the tech sector. Last night Dell CFO Donald J. Carty says “U.S. business customers are holding back from spending on desktops". He added that "U.S. companies may continue to defer technology spending into this summer”.
Then this morning, from a note I picked up in the excellent StrategyEye (well, I am an angel investor!) - Handeset sales down 16.4% in Western Europe
This reads - Sales of mobile phones were down 16.4% in Western Europe in the first quarter of 2008, says Gartner. It is the first decline in the region since Gartner began tracking the mobile device market in 2001. However, global sales of mobile phones continued to grow, primarily driven by emerging markets. Gartner estimates that around 294.3m mobile phones were sold worldwide in Q1, a 13.6% increase over the same quarter in 2007.
"Mature markets felt the pressure of an uncertain economic environment," says Carolina Milanesi, research director for mobile devices at Gartner. "Sales of high-end devices, in particular, were lower as consumers turned to mid-tier devices when looking to upgrade their old phones."
Friday, 30 May 2008
Desktops and mobiles feel cold draft of economic downturn
Thursday, 29 May 2008
Patient records
I received this email yesterday from Dr Chris Martin from Xenva.
Richard
Reading Holway’s HotViews today reminded me of a question I have long wanted to ask.
Why did the NHS choose what appears to be a monolithic and closed private architecture for their patient records system? There are internet based systems such as WebEx and Facebook which allow millions of records to be stored, accessed and maintained on a more open system, standardized architecture. Encryption and security software and systems exist that are good enough for financial systems where again internet architecture is used as a backbone for internet banking. Recent incidents have demonstrated that centralised monolithic systems are more prone to gross breaches of security and data loss than distributed web based systems.
None of this is new, yet the public sector seems to adopt a completely different procurement and architecture solution to the rest of the world – why? What are the benefits?
Best regards
Chris
Chris’ note coincided with an excellent article in Ovum’s StraightTalk by Georgina O’Toole and Cornelia Wels-Maug – The fight for patients’ records . I really do commend you to read it in full.
Basically, it was occasioned by the release in the US of Google Health which allows patients to archive their medical records on Google’s extensive data centres. The service (like most of the stuff we get from Google – eg Blogspot and Feedburner which bring you Holway’s HotViews) is FREE; both to the patient and GP/hospital. Google retains the right to 'sell' the data for research purposes. (Those in the UK with long memories might well immediately recall VAMP which promised GPs free PCs in return for access to medical records). Google is not alone as Microsoft has launched a similar service called Health Vault.
Ovum makes the point “In the UK, services like Google Health would compete with portals such as England's NHS Choices (which enables patients to find information on local health services, medical conditions, treatments and healthy living) and Wales's My Health Online. Although patients may well want to supplement the patient record that is held by their GP or hospital with a Google Health or Microsoft Health Vault record, we do not envisage clinicians ceding control of full patient records to the patient in the foreseeable future.”
Ovum concludes “it remains to be seen who can address the underlying fears surrounding abuse of data protection better - a state agency or private enterprises?”
I am reminded of my own doctor who told me some years ago to insist that I physically took my X-Ray from the hospital to his surgery as that would be the best way to ensure it didn’t get lost (this was before the digital X-ray system was implemented) Personally I’d much rather have my medical records on Google than on the NHS System. I know that sounds strange – but I entrust a huge amount of very personal data to Google already! So far I haven’t had any problems.
And, of course, as Dr Chris Martin says (above) that is before the HUGE cost saving such a system could provide.
Your views, as ever, gratefully received.
Verwaayen v Sarin
I had been planning to write my own comparison of Ben Verwaayen's time at BT compared with Arun Sarin's time at Vodafone - as their reigns both come to a close in the next month. However, today's Evening Standard has a similar article - Telecoms giants who made the correct calls - so I won't repeat it. I rather liked their chart - I doubt I'm allowed to reproduce it but, if I do get into trouble, I fully acknowledge their ownership, copyright etc.
I'd always been brought up to believe that if you had to choose just one performance measure, it would be EPS. On that score, Verwaayen wins by boosting BT's EPS by 171% (from 8.8p to 23.9p) during his tenure compared to Sarin's 'mere' 83% increase (from 6.81p to 12.5p). On dividend growth, Verwaayen wins hands down - with BT's dividend up from 2p to 15.8p compared with Vodafone's up from 1.69p to 7.51p.
But Sarin wins on the share price stakes with BT largely back to where it was when Verwaayen arrived but Vodafone's share price up 36% since Arun arrived. However, even that rise is hardly 'stellar'.
But, let's be magnanimous, both Verwaayen and Sarin were great leaders of great 'British' tech companies. As the Evening Standard concluded "We were lucky to have them" .
Fujitsu pulls out of NHS IT
In what is undoubtedly a major setback to the NHS IT project, Fujitsu has terminated its £896m NHS IT LSP contract in the South of England. This is the second LSP contractor to withdraw; Accenture withdrew in 2006. This leaves just BT (London) and CSC (North, Midlands & East) left in the project. Of course there have been other casualities - not least iSoft. Fujitsu's withdrawal has repercussions for Cerner too - as Fujitsu used their software in the South after dumping IDX.
At a conference in November 2005, Richard Granger (who then headed the NHS IT Project) famously likened the project to a sled being pulled by huskies, in order to warn slow vendors that they would be "chopped up and fed to the other dogs". The problem with this approach is what happens when you run out of huskies. BT is reportedly prepared to take on Fujitsu's responsibilities. That would be a much smoother transition (than to CSC) as BT use the same Cerner software as Fujitsu. I've never quite got to the bottom of how much the NHS IT project has already cost BT to date.
I have backed the tough stance that Granger had taken on the project. It was the only major public sector IT project I know where failure and delay financially hurt the supplier only. The NHS IT project is still significantly underspent. But an underspent IT project that fails the user is a total waste of everybody's time and money. I also know that the very best projects I myself have run are where BOTH the supplier and purchaser think they have got a good and fair deal. I find a pragmatic approach to these things is always the best. Pragmatism seems to have been in short supply in the NHS IT project.
Finally, where does this leave Fujitsu who could well lose £300m? Where does it leave its UK CEO, David Courtley? Topics I am sure I will return to in the days and weeks to come.
Beyond Blogs onto Social media
Can I commend you to read Beyond Blogs in Businessweek (2nd June 08 print edition). It is a review of how things have changed since the original Businessweek story in May 2005 - Blogs will change your business.
Reward for failure
I am one of the greatest supporters of 'performance-related pay'. Indeed, I have chaired several Remuneration Committees designing LTIPs and the like. But, if there is one thing that gets my goat, it is rewarding failure.
So when I read of the multi-million reward packages for Ben Verwaayen (outgoing CEO) and Ian Livingston (incoming CEO) at BT - See The Times New BT boss offered £7m to hit targets - I wasn't too concerned. What really upset me was the £376,000 payment which continues to be made to (Sir) Peter Bonfield six years after he left BT in the most perilous state after his disastrous reign as CEO.
All I now need to get my blood pressure even higher is to learn that Bonfield is still being paid by Fujitsu for his similarly "disappointing" period as CEO of ICL.
Wednesday, 28 May 2008
New Chairman at Computacenter
Computacenter has appointed Greg Lock as its new Chairman. Interesting as Lock is a software guy. Lock has a good track record of undertaking change (greatly needed at Computacenter) at Kofax (was Dicom) and Surfcontrol. Lock spent most of his career at IBM. He's also currently an NED at Liberata and Target Group.
Peace breaks out at Atos Origin?
Further to my post yesterday - Atos Origin turns from farce to tradegy - it appears that the warring parties have seen some sense and come to an agreement which I have reproduced in full below. Barring mass suicide, the option taken is the only viable one.
Other than the reappointment of Bernard Bourigeaud to the Atos board, the Atos board has capitulated to ALL the demands of the activists.
But, let's be clear, anyone who thinks that Atos Origin will now fade from the headlines to continue its business in peace is living in cloud cuckoo land. The activists were only involved in Atos Origin to get the management to consider selling and/or breaking up the company so that they could make a return on their investment in 23% of the equity. That must clearly still be their objective. The key part of the statement is the formation of the Strategic Review Committee where the activist representatives, plus the guy from Boston Consulting, will have a big influence (control?). So the For Sale signs are not only still out on Atos Origin but they have now been lit up in neon.
I spoke with Keith Wilman, CEO of Atos Origin UK, a few minutes ago. As he said, he just wants "to put this nonsense behind us". Keith craves some stability and wants to "get back to business". Although he hasn't detected any really evidence of customer wobbles (yet) Keith has experienced concerns amongst staff he has attempted to recruit.
Joint Atos Origin, Centaurus & Pardus Statement
Paris, May 28, 2008
Atos Origin and its two largest shareholders, Centaurus Capital and Pardus Capital Management are pleased to announce that they have reached an agreement which they consider to be in the best interest of the Company, its employees, its clients, and all stakeholders.
Pursuant to this agreement:
- All parties regret the incident which resulted in the adjournment of the shareholders’ meeting. Having resolved their past disagreement, they both reaffirm their mutual respect and common intention to work in the long term for the development of Atos Origin. In particular, Pardus Capital Management and Centaurus Capital reiterate that they have no intention to break up the Company, and confirm that they have all confidence in the professional skills of the Management Board members and the entire staff.
- Atos Origin, Centaurus Capital and Pardus Capital Management agree to support, recommend and vote in favor of a nine-member Supervisory Board structure, comprised of seven independent members and one representative for each of Pardus Capital Management and Centaurus Capital:
- Jean-Philippe Thierry, Chairman of the Supervisory Board
- René Abate
- Behdad Alizadeh
- Benoît d’Angelin
- Jean François Cirelli
- Michel Combes
- Colette Neuville
- Vernon Sankey
- Michel Soublin
- This structure is expected to be submitted to shareholder approval at the upcoming AGM on June 12, 2008, where shareholders will be asked to vote on all members of the Supervisory Board, with Jean-Philippe Thierry subsequently appointed to the Supervisory Board and then elected as Chairman subject to other members being elected
- All parties are delighted that Jean-Philippe Thierry, chairman and chief executive of French insurance group AGF and a member of the Allianz management board, has agreed to take this position to bring stability and support the development of the Company. Mr. Thierry is a prominent member of the European business community, Chairman of the Supervisory Board of Euler-Hermes and of the Mondial Assistance Group and also a director of PPR and Eurazeo (in a non-voting capacity).
- A Strategic committee will be created, the purpose of which will be to examine, in close cooperation with the Management Board, all investments and strategic options available to the Company in order to maximize shareholder value.
- In addition, Centaurus Capital and Pardus Capital Management have committed to vote in favor of all resolutions recommended by the Management Board at the upcoming general meeting of shareholders on June 12, 2008.
- Benoît d’Angelin and Behdad Alizadeh have undertaken to resign from the Supervisory Board within ten days if the stakes held respectively by Pardus Capital Management and Centaurus Capital fall below 5%.
Atos Origin’s Supervisory and Management Boards welcomed this agreement as a strong signal that all parties would now work constructively in the best interests of the Company. Philippe Germond stated: “I am convinced that this agreement and the undertakings made by all parties will send a strong signal of stability to our clients, employees and all stakeholders. This is excellent news from an operational standpoint as the Company is now free to fully focus on accelerating its development and building on the strong momentum observed in 2007 and Q1 2008. I look forward to working with the Supervisory Board on addressing the many opportunities for strengthening our European leadership which lie ahead of us”
Bernard Oppetit and Karim Samii said: “We believe there is tremendous potential for value creation in this Company, and we are confident that the strategic review undertaken at the initiative of this new Supervisory Board will point to the best ways to maximize value for all shareholders.”
Monday, 26 May 2008
Alliance Globalcom ‘wins’ Vanco
Indian telco company Reliance Globalcom has been revealed as the new owner of Vanco. Reliance also bought UK eWave last month. Reliance is to pay $76.9m for "100% of the equity free of debt". Even that is only a third of the £123m said to be owing to the banks. So they will only get a fraction of their debt repaid and clearly there will be nothing left for the shareholders. Others interested in buying Vanco were reported as C&W, BT and T-Systems. Whether Reliance pay £0, £40m or £400m is less relevant than the buyer knowing the true extent of the liabilities and understanding what they are letting themselves in for. I should remind readers that Vanco is a company that managed to spirit away £60m cash in a couple of months and whose accounting practices have been questionable – to say the least.
'The acquisition of VANCO is in line with Reliance Globalcom's vision to create one of the Top 5 Global Datacommunications Enterprises in the world,' said Anil Dhirubhai Ambani, chairman of Reliance Communications.
See my 6th May 08 piece Vanco shares suspended, CEO resigns.
Personally I think this is a really sad outcome. I liked both the Vanco Virtual Network Operator (VNO) model and I knew Allen Timpany (who owned 48.5% of the now worthless stock) Vanco was worth £400m just a couple of years back at its heyday; putting Allen into the Times Rich List. I can also remember a meeting with BT Global Services at that time when Vanco was named as their #1 competitor in the network management marketplace. Now that is some achievement for a company a mere minor fraction of BT’s size.
Assuming the liabilities are known and capped, Reliance might be getting quite a bargain. Vanco has over 200 mostly bluechip customers including British Airways, Siemens, Ford, Avis, Pilkington and Virgin. They claim 34 of the Fortune Global 500 companies as customers. They include both multinational and large national customers; most of whom are on long term (3-5 year) contracts. It claims offices in 26 locations worldwide. Vanco has direct relationships with around 700 carriers and provide DSL access in 161 countries. It manages around 40,000 sites worldwide on behalf of its customers. Its network has 7000 PoPs and 15,000 direct internet access PoPs. They work closely with SITS companies like CSC (at Belron), IBM (at Lloyds TSB) and with channel partners such as ARINC in the air transport industry and carriers and communications companies including Verizon, Bell Canada, Bell South, Comcast, AOL and Qwest.
Vanco has revenues of nearly £200m (that’s excluding the many £bn of revenues from the telcomms services billed by others that Vanco ‘controls’). They claim ‘unbreakable’ contracts valued at c£400m (31st March 07)
I particularly liked Vanco because:
- From ‘nothing’ they have been able to ‘take on’ the majors like BT Global Services, AT&T, Orange Business Services, Verizon Business and T-Systems. Vanco is seen as a ‘threat’ to these companies even though it is a fraction of their size. Even in the Managed Network Services market Vanco has <25% the market share of its larger competitors.
- I like the fact that Vanco has concentrated on small to medium-sized deals. I see this as a USP.
- Vanco has a simple business model. Easy to understand.
- Vanco always seemed to me to have a pretty lean operation.
- Vanco has an excellent reputation for customer service and for reliability. This manifests itself in its high retention and low churn. Reputation should have a high value.
Reliance will need to act fast to ‘steady the ship’ and avoid mass defections of customers, partners and staff.
Geoff Squire doubles stake in TiG
Innovation Group (TiG) was the biggest faller amongst the UK SITS stocks last week – down 21% at 21.5p. Clearly my friend Geoff Squire, the Chairman of Innovation, thought ‘enough is enough’ and bought another 10m shares at 21.5p (ie a £2.15m investment) – thus doubling his stake in Innovation to c3.1%.
The share decline had been occasioned by the release of interim results on Tuesday. Revenues grew 33% to £64.2m – boosted by acquisitions of Nobilas, First Notice and others. But adjusted profits were a third lower to £4.0m.
TiG plays in the 3rd generation BPO marketplace. As readers know I am a fan of BPO which still enjoys double-digit growth. 75% of TiG’s revenues now come from outsourcing – an increase of 48%. I particularly like TiG’s 83% recurring revenue base. They are much less reliant on new software product sales than they were a few years back. Thank goodness, as software sales at £16.2m were pretty flat.
So, with TiG, it’s not “the vision bit” that’s the problem, it’s ‘the execution bit”. Investors and analysts alike have got frustrated that the vision hasn’t translated into profit performance or cash generation. They also seem increasingly worried about the many acquisitions. Are they really working? Or are they causing a distraction to the management in building the core business?
Whatever, TiG share performance has been frustrating, to say the least. They have been in the 25-35p range for 3 years now. Geoff Squire joined TiG as an NED in 2001 when TiG’s market valuation exceeded £1b – those were the days! He became Chairman in June 2002 by which time the market valuation had slumped to £300m. Geoff had to face and address some pretty major problems and there were some pretty rocky times!
But after all that work and, let’s be fair, great progress, TiG now has valuation of just £140m. So maybe we should all take note of Geoff’s major purchase at what I’m sure Geoff believes will be the low of 21.5p .
Atos Origin turning from farce to tragedy
Basically activist shareholders – Centaurus and Pardus who now hold c23% of the stock– want to gain control of the board and put the company up for sale; thus gaining a quick and possibly fairly significant return on their investment. They could have got their way as, at the last minute, Gerard Guerguerian representing the Employee Shareholder Trust (which holds 3% of the shares) said they would vote with the activists. However, Philippe Germond declared that Gerard Guerguerian did not have the authority of the Employee Trust to cast his vote that way. So he adjourned the AGM.
Guerguerian reports into Germond and sits on Atos’ Exec Committee – so you can see why Germond, his boss, was just a little peeved by this act of disloyalty. On Friday, the Employee Trust removed Guerguerian (I am unsure about the security of his day job) . So I guess the reconvened AGM will now endorse the management. Also on Friday, ex-Atos CEO, Bernard Bourigeaud, announced that he no longer wanted a seat on the Atos board, as a representative of the activists, because of ‘hostility towards him from management and board members’.
This is all deeply unsatisfactory. When Atos was up for sale last year, it reckoned it lost upwards of €100m of business. Goodness knows what it is losing now. Would you award a big contract to a company where its future was so unclear and its shareholders were acting in this juvenile manner?
As I said before, Atos deserves better than this. Whatever way the vote goes, it all means that Atos’ days as an independent are numbered. Paul Hermelin, CEO of Capgemini has already been approached by the activisits to buy parts or all of the Atos. But the price that shareholders will get will be seriously eroded everyday that this open warfare continues.
We are all bargain hunters now
This struck a chord with me. The internet has made our family keen bargain hunters. Having established the product we want (either on the web or by doing the product research on the High Street) we always search for the best deal on line. The savings run from a few pounds to the £1000+ I saved on putting together a visit to the opera in Verona in late August.
But one of the greatest changes has been in the use of discount voucher sites like http://www.latestdiscountvouchers.co.uk/ Having established what we want to buy, where and at what price, we always check for a discount code before checking out. We never fail to get another 10% or more discount or at least free delivery.
As we have been doing this for some time, I can’t say that the economic downturn is the reason. Maybe the rest of the population is catching up with the Holways in the bargain hunting stakes.
CSC returns to growth
Last week Computer Sciences Corporation (CSC) announced Q4 and FY08 full year results. Q4 revenues were $4.48b up 11% (or 7% on a constant currency basis). European revenue rose to $1.38 billion, up 12% (approximately 4% in constant currency) from $1.23 billion for the fourth quarter last year.
For the year, CSC revenues rose 11% to $16.5b. In constant currency that would be c7% and about 4% if you get back to pure organic growth excluding recent acquisitions (most significantly the acquisition of Covansys last year which gave them a 15,000-strong workforce in India). Still that’s better than the ‘no growth at all’ they reported in FY07.
However, as my (ex-) colleague Phil codling said in Ovum’s Straighttalk “CSC's deal signing performance raises some question marks, however. The sum of $13.3 billion in total contract value for the year is down on the $16.9 billion bagged in FY07. Bear in mind that $11.2 billion of the FY08 signings came from the public sector, which means just $2.1 billion came from CSC's global commercial interests. CSC says some signings have slipped into FY09 and reports a reasonable start to the year, but the low level of major commercial signings is undoubtedly a weakness the company needs to address”.
CSC doesn’t report UK revenues, but I’d guess that CSC UK has probably achieved a c10% growth – about twice the UK SITS growth rate - putting them on revenues of around £1.3b.
The potential disruption in the market caused by the HP acquisition of EDS, let alone the problems at Atos Origin, ought to act to CSC’s advantage. But we should all remember that CSC itself was put up for sale on a couple of years back. Personally I still reckon they would fall at the right price. .CSC has a market valuation of $7.6b – a PSR of just 0.36. Although CSC shares have performed well this year – up 20% at $48 – they have traded +/-20% of the current level for the last 5 years. CSC’s PSR (0.36) compares with the 0.55 that the HP deal put on EDS. Even Atos Origin (see other article) has a PSR of 0.49. I’m not suggesting that PSR is the only valuation metric – I’m pretty keen on profits and cash too! – but it might demonstrate how much upside there is at CSC right now; particularly if Big Eat Big consolidation takes hold.
CSC UK gets to Last Five in ID project
The UK team, under CEO Nick Wilson, will also be pleased/relieved to get to the Last Five of the ID project selection process . See Five survive the cuts as doubts grow about Government’s ID card scheme. It’s a bit of a peculiar short list as IBM, Fujitsu, Computer Sciences Corporation (CSC), Thales and EDS were the only ones left in contention after Accenture, BAE Systems and Steria had dropped out recently. Indeed, two of CSC’s own potential subcontractors on the ID project had also dropped out; Siemens six months ago and Unisys last month. The Times said “CSC said that it could deliver on the ID contracts and has “two organisations working with them on the ID Cards programme”, but it would not reveal their names.”
Tuesday, 20 May 2008
Microsoft and Yahoo
So the Microsoft/Yahoo talks are on again. Can I commend you to read Lex in the FT today - Microsoft and Yahoo as it contains much sense (Holwayese for "I agree with")
Firstly, it makes the point, which too few observers seem to understand, that Microsoft's main threat comes in Google (and others) challenge to its core Windows and Office franchises. Where Google has a "runaway lead in internet-based computing". Personally I am less sure that a linkup with Yahoo (however contructed) does as much to help Microsoft in that area as Lex suggests.
Secondly, Lex says "the latest idea - of Microsoft buying only Yahoo's search business - sounds unworkable." I agree.
I have never been in favour of this deal. However, if it had to happen then clearly a friendly and positive deal is much to be preferred. A hostile deal, only consummated after Carl Icahn has forced Yahoo to take the momey, would be the very worst start. A bit like a "Shotgun marriage". So as Lex says "much now depends whether Mr Ballmer and Yahoo's CEO, Jerry Yang, can swallow their pride and make it happen".
Anite bid talks terminated
Anite shares have fallen by 8% to 44p (11.00am) on news that bid talks have been terminated.
I quote (with permission) from George O'Connor (Panmure Gordon) note this morning:
"Our earlier view was that a bid was likely to be ‘cheeky’ – given that Anite has been trying to sell Public Sector for the past two years. Operating results from Anite are set to deteriorate and so there is a risk of 1) no bid as it fails buyer due diligence; and, 2) no agreement on fair value.
Why no MBO? Anite has been marketing its Public Sector division for about two years and so should be well known to potential buyers spanning trade and industry – we still don’t know why an MBO hasn’t been the option. There is no shortage of buyers for public sector IT companies – note the recent acquisition activity in Civica, Northgate Information Systems and IBS – and it is telling that Anite escaped interest in this phase.
Latest operating news This was the Q3 IMS, 10 March, which was woolly, with Anite stating that Group profitability is dependent on the latter weeks of H2, so leaving the door open for it to miss estimates. As to the divisions:
- Wireless - Handset Testing weakness continues;
- Travel continues to perform strongly, with better than expected order intake – we highlighted this in February;
- Public Sector - a continuing improvement in underlying profitability at Local Government, but market conditions have not improved.
Net debt increased marginally."
Smart move
Tim Smart, who many of you will know as President of BT Global Services UK, has been appointed as CEO at Kings College Hospital. For the past 5 years, Tim has been responsible for all BT's business with the UK government and large enterprises in the UK, including the NHS.
NHS Chief Executive David Nicholson said of the appointment : "Tim Smart's skills and experience will be invaluable as CEO of one of the UK's biggest hospitals. I am impressed by his firm commitment to the NHS and look forward to working with him to deliver both world class medical research and best patient care at King's."
As far as I am aware, this is the first time that any CEO of a major Hospital Trust has been appointed from the private sector - let alone from the tech. sector. I've known Tim for many years and I'm not surprised at the move. He's long told me that was one of his 'life-changing' ambitions. I'm sure Tim will be a 'major shot in the arm' - if that's not too much of a medical expression - to the NHS. I obviously wish him well.
For further details see article in eHealth Insider.
I await further details on how his BT role will be filled. I would suspect they will appoint a UK Country manager from within to cover both public sector and commercial activities.
Friday, 16 May 2008
Prince's Trust Enterprise Leadership
On Thursday, because I'm the current Chairman 
of the Prince's Trust Technology Leadership Group, I was invited to the Prince's Trust Enterprise Leadership Conference. It was a moving, interesting and thoroughly enjoyable event.
Moving - nobody could have failed to be moved with Gina Moffatt's story of how the Prince's Trust helped her to form her flower business - Blooming Scent - after a pretty troubled past (which Gina was most open about but I won't go into here). Her relationship with Dragon's Den, James Caan, illustrates how the mentoring programme is the REAL DIFFERENCE that the Prince's Trust can make (although not all mentors are quite as famous as James!)
Interesting - because it showed how effective the Prince's Trust can be in getting young, disadvantaged people back into believing in themselves to such an extent that they make real contributions to society. Even from a financial view point, the average person that the Prince's Trust Business Programme supports contributes £3000 more to the Exchequer than the typical young person. For each £1 invested, £2 is returned. Not bad!
It also demonstrated what a pent-up demand there was amongst young people to form their own business. In a survey by the Prince's Trust, over 40% of young people interviewed wanted to start their own business but only 6% actually did. The UK was considered a pretty unattractive place for young people to start their own business; particularly compared to the US.
Enjoyable - because I just love talking to all these young people and sharing their enthusiasm. On the other hand rubbing shoulders with Dragons, ministers, newsreaders and a Prince, can be pretty entertaining too.
And Alistair Darling actually made the audience laugh. Must be a first! One of the most successful technology businesses that the Prince's Trust Business Programme has supported is Kashflow (some of you will have seen its founder Duane Jackson at several Technology Leadership Group events) Darling said in his speech "One of the first people we met was someone who has invented something called KashFlow. I indicated that the Treasury is just across the road and may be very happy to buy a copy of his software." This made the audience laugh for some reason!
Holway, from the floor at question time, also made his usual points about providing more Enterprise role models in the media for young people, more government financial support for the Prince's Trust (in particular a return of the £4£ matching funding the Prince's Trust used to enjoy) and getting a clearer message of welcome for serial entrepreneurs in the UK.
You can read more on the Prince's Trust website at Business bosses back business programme ; even watch the videos. Also details of the considerable press comment this stimulating conference provoked.
Obviously, if you would like to get involved in the Prince's Trust Technology Leadership Group, please drop me an email on rholway@holway.com.
BT Footnote
Of course, Ben Verwaayen wasn't the only 'BT-related' departure this month. My ex-colleague Mike Cansfield is one of the (too) many senior analysts to leave Ovum in the last period. Mike (and I..) covered BT for many years. So it came as quite a shock not to read his words of wisdom on BT's full year results as an Ovum analyst but now with the tag line Michael Cansfield - Principal Analyst Forrester.
You can read Mike's comment in the Times report - Threat of industrial action at BT hangs over Verwaayen' departure or I quote the last paragraphs:
But there are detractors. In a recent research note Robin Bienenstock, of Bernstein Research, said: “We believe that BT is in a strategic checkmate, with a fundamentally flawed core business, a heavy balance sheet and onerous capex obligations.”
Mike Cansfield, principal analyst at Forrester, said: “The issue for BT is how much its top line can grow. Two per cent growth is not significant. The challenge for Ian Livingston is how to get top line revenue to grow.”
Good to see he hasn't succumbed to Forrester's normal style...yet!
Alterian is disclosed as Mediasurface buyer
I've already declared my interest as an (indirect) shareholder in Mediasurface via Elderstreet- Mediasurface soars on bid approach.
Today Alterian has emerged as the bidder with a 15p bid - 9p cash plus 6p in Alterian shares. That's a value of c£15m. Alterian is raising £13.2m in a placing.
Both companies announced their results today. Alterian's full year results to March show revenues up 38% £19.3m and PBT profit doubled to £4.0m. Mediasurface has issued its interims which show revenues up 17% to £7.1m and a pre-tax loss of £0.1m. So the two companies are not too different is size - but a world apart in both profit performance and valuation. Alterian £68m, Mediasurface £18m.
Although I see the logic of the deal for both parties, personally, I'm very disappointed that Mediasurface has only attracted this valuation. I had such high hopes for the company right from the earliest investment in 2000. It was the mis judged and executed entry into the SME market what done for them. Still, I guess it's a done deal now so I'll have to close that book and move on.
CBS buys CNET for $1.8b
I’m sure that many of you have used CNET (or its other sites like ZDNet, CnetNews.com GameSpot, TV.com, UrbanBaby, Chow, Search.com and MySimon). Of course, I’ve always had an interest because:
a) they often quote me (or the analysts from Ovum and
b) their valuation metrics tend to have some bearing on the businesses I am involved or invested in (like Strategyeye).
So the $1.8bn valuation (a 45% premium to the previous close) put on it by CBS is interesting as it represents over 4x CNET’s c$400m 2007 revenues. CNET was loss making at both the operating profit and EBITDA levels in Q1 2008 but expects to post revenue of $450 million in 2008 with earnings of less than $200m.
But what CNET delivers is 100m+ unique visitors a month – all tech-savvy with an interest in buying everything from the latest gadget to an enterprise system. Readers may remember that at the height of the Microsoft/Yahoo! bid battle, I suggested that CNET (amongst several others) would be a better (and much cheaper) acquisition for Microsoft; delivering them all those tech-savvy users.
But the real action now has swung to ‘conventional media groups’ buying into high value content to drive users to their sites so they up advertising revenues.
Anyway, the combination of CBS and CNET creates the 10th most visited “internet group” in the US.
For more details of the deal, see today’s Financial Times CBS to pay $1.bn for CNET networks
Footnote – Holway got 4-5x revenues when he sold Richard Holway Ltd to Ovum in 2000. Datamonitor was bought by Informa for around 5x its 2007 revenues. This should give hope to all HotViews readers currently trying to build content and social networking internet site-based businesses right now!
Straighttalk
Ovum has just released the first edition of Straight Talk which replaces Systemhouse and EuroView Monthly. It is very much a global view. You can download the pdf from http://www.ovum.com/client/straighttalk/st_may08.pdf
It has a very interesting piece on Logica’s Business Review.
BT and "Goodbye Ben"
BT exceeded expectations in Q4 and reported revenues of £20.7b and EBITDA of £5.9b. It was rewarded with a 5.4% rise in its shareprice - the best in the FTSE100 yesterday. A good way to say "Goodbye Ben"
I was particularly ‘impressed’ with the performance at BT Global Services where revenues increased by 10% to £2226m; with revenue growth accelerating to 28 per cent outside the UK. However, they did get a bit of help from the strengthening of the Euro. EBITDA margin improved by 0.4 percentage points to 13.7 per cent in Q4 – so getting closer to the 15% target. BT Global Services said “This improvement was driven by the maturity of some of our large long-term contracts and some up front benefits from the transformation of our operational cost base through global sourcing and process improvement”.
Total orders in the quarter amounted to £2.8 billion, bringing the value of orders achieved over the last twelve months to £8.0 billion. These included an eight year outsourcing deal with Thomson Reuters to manage the WAN element of its internal IT infrastructure; a five-year outsourcing agreement with KPMG practices in the UK and Germany and a five-year outsourcing agreement by the BT/HP alliance with Nycomed.
BT Global Services seems to be ‘storming’ with its Network Management activities – particularly outside the UK. But, of course, it runs a more conventional IT services model in the UK. Can BT afford to run a different model in the UK than elsewhere? It is now less likely that they will extend the UK model globally. They would need to buy a Tier One IT services player to achieve that – and one of the main targets (EDS) has gone to HP this week. Indeed, that leaves questions over the BT/HP relationship in the future.
Finally, it was “Goodbye Ben”. A good sendoff in the FT today – Plaudits for Verwaayen’s success. Ben has been very good to me and, in the past, to my company Ovum. I shall miss his instant Blackberry reactions to any comments I make. As the papers say, he will be a hard act to follow. I wish him every good fortune in his new endeavours.
Thursday, 15 May 2008
Hot Gossip
At a dinner last week, everyone seemed to be avid Holway's HotViews readers. One even suggested I change its name to Hot Gossip. Or Holway's People as another suggested.
Wednesday, 14 May 2008
Logica's Q1 IMS
Logica’s IMS seems to have been well received with the shares up 5p/4% at 130p at 9.00am.
Q1 revenue is up 3.6% at £855m – ahead of most analyst expectations largely due to currency. Logica has reaffirmed 2008 guidance - i.e. revenue growth c 3% at constant currency and margins c7.6% unchanged year-on-year. Book-to-bill is 1.06:1 which is marginally on the right side for future growth.
Logica says “We continue to see a few examples of slower spending in an uncertain market environment but overall market activity levels appear resilient and underpin our confidence in our 2008 guidance. We remain alert to changes in customer sentiment and are carefully monitoring utilisation levels and recruitment. We are continuing to build flexibility in our resourcing model through the use of subcontractors and our blended delivery model.”
Geographically:
- Nordics £236.2m. "Slower growth" in Sweden was offset by good growth in Finland and Norway
-UK £174.7m with Public sector revenue up 7.3% (they signed two orders totalling £31.5 million with the Home Office) but commercial revenue down 8.3% where “Financial Services continues to be the most challenging sector”.
- France £170.5m where "demand remains good"
- Netherlands £139.5m where Public sector is "the main driver of growth".
- Germany £50.0m reported strong 11.4% growth in Q1 but slower recruitment along with higher attrition means that this growth rate is unlikely to be sustained
- International £85.0m revenue was up 7.6% “ driven by good growth in Australia, Belgium and Central Europe and an exceptional performance in Brazil”
My View?
In my Views on Logica’s Business Review on 22nd Apr 08 I made the following statement
"Logica’s problem is that they are Logica. They are a mid-sized player doing lots of different things in lots of vertical areas in lots of countries in Europe. They are a ‘mid-sized generalist’. For many years they have been a ‘mid-sized generalist’ and if Green’s plan is followed they will continue to be a ‘mid-sized generalist’.If you have read Holway’s views over the last 20 years you will know that being a ‘mid-sized generalist’ is an increasingly uncomfortable place to be."
This “mid-sized generalist” tagline got picked up by many other analysts and repeated in their own reviews. Given yesterday’s (inevitable) news of HP+EDS, the “mid-sized generalist” position has got an EVEN TOUGHER place to be. I’d have preferred Andy Green to “Get niche” but he’s set out his plan and I wish him every good fortune in its execution. Well, I am a long term Logica shareholder afterall!
I contend that Andy’s objective is to clean up Logica for a sale rather than turn it into a Global Tier One player (Martin Read’s ambition). I forecast that such a sale will happen within the next two years. If Andy can avoid any major execution hiccups, then investors should see a reasonable up-tick in the share price. If that happens, Andy can justifiably claim “Job Well Done” and I, for one, will give him justifiable plaudits.
Invu revenues soar
Invu was founded in 1997 and listed on AIM in 2004. It provides electronic document management systems to SMEs.
Invu came to may attention many years ago because its Non-exec Chairman is Daniel Goldman – the son of David Goldman; the founder of Sage. Being an (very) SME myself, I’ve always found document management a real trial. Indeed, I’ve now got to the point where if I can’t find it on my computer – I give up. Now that’s something which can be frustrating at best, downright dangerous at worse. The problem is that anything sent to me in any form other than an email never gets onto my computer. Invu’s systems solve all that and allow SMEs to provide fully indexed and therefore ‘findable’ electronic documents from whatever original source (faxes, technical drawings, legal documents, signed contracts, letters etc.) That’s why I have always thought they were onto a winner.
Revenues for the year to 31st Jan 08 were ahead of expectations; up 38% at £8.71m. Typically “Sage-like”, InvuCare revenues are now £1.47m with 77% renewal rates from the 3700 customers and 72,000 users that Invu has amassed.
However, PBT fell from £1.82m to £1.72m – largely as a result of a £1m “one-off restructuring costs related to the corporate restructuring”.
Invu also announced a number of new senior joiners – CTO, Head of OEM Sales and Marketing, Director of Marketing. So it’s starting to look like a real grownup company now.
Invu shares were down 1% yesterday at 31.6p valuing the company at £35.5m. This is pretty much the same level as the 30p fund raising a year back and not far from the all-time high of 34.5p. Investors who came in at the 8.5p Jan 2004 IPO can’t really complain!
Tuesday, 13 May 2008
HP confirms $13.9b acquisition of EDS - First Tier One + Tier One for 20 years
HP has confirmed that it will be buying EDS for $13.9b or $25 per share. Both boards have agreed the deal. The acquisition should complete in H2 2008. The deal has created 'mixed' reactions - at best. Interesting to note that the markets knocked $16b off HP's valuation - ie MORE THAN the price Hurd is paying for EDS.
EDS employees and customers will be heartened that "HP intends to establish a new business group, to be branded EDS – an HP company, which will be headquartered at EDS’s existing executive offices in Plano, Texas. HP plans that EDS will continue to be led after the deal closes by EDS Chairman, President and Chief Executive Officer Ronald A. Rittenmeyer, who will join HP’s executive council and report to Mark Hurd, HP’s chairman and chief executive officer. "
I am reluctant to add to the welter of comment on this deal. If you haven't seen these (where have you been?) read :
- Financial Times - Shares hit by HP landmark $14b move to buy EDS - and the rather good review of how IBM 'done it' - IT deal raises small matter of Big Blue
or
- PC World - HP and EDS: A high risk pairing say analysts (in which "Veteran IT analyst" Holway is quoted!)
Of course, I would also recommend the review by Phil Codling of the 'old' Ovum Holway team. Click here.
Personally, as I said last night, I am broadly in favour of the deal provided the people 'assets' are protected and 'culture' respected. The devil will be in the execution. But, as the FT says "if Hurd gets even close to replicating IBM's success in [the IT Services/outsourcing] area, the deal will turn out to have been shrewd"
Footnote
At the Intellect Roundtable on Tuesday I did actually cause a round of laughter when I said "I've been forecasting that a tier-one player will take over another tier-one player for 15 years and now it's finally proven that I was right." But when it is written up coldly like that in the media today it rather loses its humourous edge!
It is interesting to note, however, that although we have seen many "Tier-one + Tier One"-type M&A in software, hardware, media etc., there hasn't been one on the global IT Services scene in my memory recall. It's always tended to be Tier One (defined as "Top Ten") buying Tier Two and most often Tier Three.
In the UK, you have to go back to the 1980s to find the last tier-one (Top 10) UK IT Services player taking over another tier-one (Top 10) player. It would probably have been Systems Designers taking over SCICON (which ironically, as SD Scicon, was actually taken over by EDS and is the subject of the current HP bid) or Thorn EMI Software/Software Sciences linking up with Datasolve to form DataSciences (now IBM Global Services) Most of the UK's Top Ten IT Services players of 20 years back have been the subject of foreign takeover rather than local consolidation.
If someone had had the foresight and resources to put together any combination of Data Sciences, Hoskyns, Logica, CAP, SD-Scicon, ICL, the UK might have a Global Tier One IT Services player today.
Monday, 12 May 2008
HP to buy EDS for $12-$13b
As I write this piece at 10.30pm on Monday night, it has just been announced that HP is in advanced talks to buy EDS. A price of $12-13b is suggested. EDS shares have been suspended after rising 28% to $24. EDS has issued a statement admitting that the talks are taking place. An announcement is expected on Tuesday.
This is HP's first major acquisition in IT Services. You may remember that they withdrew from buying PWC's consulting activities in 2000 for c$18b.
If this deal is consummated it will be the first "Big eat Big" deal in IT Services. We have long anticipated that there would be a raft of consolidation in the sector by Tier 1 suppliers buying other Tier 1 suppliers. It didn't happen - although there was a lot of Tier 1 buys Tier 2 buys Tier 3 etc.
In the UK, EDS is already the #1 supplier of SITS to the UK market. HP is #9. As I said above, the first Tier1+Tier1 for decades. A combined HP+EDS will be the out-and-out leader - at least a third larger than the new #2 - IBM. That's not close to a 'monopoly' situation however.
My initial reaction is favourable. It's a lot different to HP+PwC in 2000 which we described as "Ink Heads buys Think Heads". HP has moved on...a lot! HP now has a lot of Think Heads too so, although I don't discount the culture issues, they are not as great as 8 years back. This kind of deal was becoming inevitable in a mature market. EDS' growth rate had been pretty pedestrian - as was HP in IT services. Both face great competition from the Indians. Consolidation just had to happen.
EDS has some damn good people - like Bill Thomas who runs EDS EMEA. HP must ensure that these stalwarts stay. Golden handcuffs are clearly required.
I'd have probably preferred another buyer. Private equity would have been best for the management and culture. Why not BT, for example? If BT are really serious about becoming a global IT services player, this was one way to do it. But I guess a share price off by 30% is not the greatest base from which to launch a $12b bid.
So who next? Or rather, who now isn't in play? Obviously Atos Origin is 'in play' anyway. CSC had been close to being sold in 2006. Capgemini is a jewel - but it's French; so the Govt would find a way of finding a French bidder should the necessity arise.
Clearly Holway reviewing SITS M&A is never going to stop.
Safe as Houses? – An Analogy
I’ve been walking in my beloved Lake District. I find it the very best way to ‘clear my head’. My wife describes it as ‘filing’. As you walk along, you can put all the files back where they belong and therefore ‘clear the desktop’. A clear desktop enables new ideas to develop. Indeed, most of my ‘themes’ have been developed whilst clambering up some fell.
I was thinking about an interview I have on Tuesday where I have to give my views on how the ‘credit crunch’ is affecting the tech world.
Everyone knows how the credit crunch is affecting the housing market and, as I climbed ever upwards (and the rain dripped down my back), the similarities became clear.
Builders have stopped building new houses. This is directly analogous to the problems currently being faced by the enterprise software vendors like SAP and Oracle. Enterprises are stopping considering installing NEW software – particularly anything that is going to take one or more years to repay the initial investment.
Builders have stopped buying new heavy plant. Last week Sun reported sagging sales to U.S. consumer-oriented companies that are putting off big-ticket spending for better times Cisco has also warned that their consumer-serving customers have cut down on their spending.
However, there is little evidence that consumers are actually spending less on gadgets…yet! I think the reduction in purchases of “heavy plant” is one example of where “fear for the future” is affecting current spend. Some say we are talking our way into recession. This is one example where they may be right!
More for Less. House prices are not the only prices falling right now. From PCs to consumer devices like iPods, prices are crashing meaning that you really do get “More for Less”. There are also reports that this is happening for fee rates too – particularly for vanilla-type IT roles.
Interestingly, house prices at the very top end are apparently holding up well. If you have a rare and in demand IT skill, despite the slowdown, your can still demand top-rate.
Home owners have stopped moving house. But you still need to maintain the existing house. The last time we had a tech slowdown – post dot.com and Y2K – we revoked the old wartime adage “Make do and Mend”. Indeed you might actually prefer to do a bit of refurbishment, even an extension, rather than move. This has a direct analogy with the software vendors too. Most make most of their revenues from existing users. Vendors like COA are doing really well right now as maintenance and support revenues are ‘core’. ‘Bolt on’ revenues are also holding up well. Indeed, many companies might be benefiting as existing companies decide against changing supplier and opt to spend more with their existing suppliers.
More social housing? Social housing (we used to call them council houses in my day) has really gone out of fashion in the last few decades. A turndown in the housing market means fewer new house builds for the private sector. The ‘best’ solution would, of course, be for HM Govt to take up the slack and build more social housing.
This has analogies with the IT sector in the UK in the last 8 years. As demand for IT from the private sector reduced post Y2K/dot.com the public sector moved in. In 2000, just 17% of UK SITS spend was from the Public Sector. In 2007 it was 30%.
However there seems little likelihood of Public Sector IT spend increasing – indeed all the forecasts are for some pretty steep declines in the growth rates. The Public sector is looking for ‘More for Less’ too.
Without wishing to be overtly political, HM Govt has little room for maneuver having “failed to fix the roof when the sun was shining” it hasn’t got the funds saved up to do much.
Rent not Buy. The home rental market is holding up well. Indeed rental yields are improving. Much better to rent than to buy in an declining market. The analogy here is with outsourcing – both ITO and BPO. Both are thriving right now. Indeed the area which is doing best is Financial Services outsourcing – a taboo area until recently.
The other “Rent not Buy” analogy is with SaaS. Although I accept that this is not a direct result of the credit crunch, it is just now starting to have an effect on the economics of the marketplace. SAP has admitted problems moving to this model and I personally believe that the greatest threat of all to Microsoft is to its core operating systems and Office revenue stream as more-and-more users move to Cloud Computing.
Pity the Estate Agents. Apparently hundreds of Estate Agents are closing each week. Strangely this revelation provokes little sympathy! The nearest analogy in the tech world to estate agents is the vast array of corporate advisors – brokers, NOMADs, legal and financial advisors, PR etc - who make their living from IPOs. There has been only one tech IPO since the credit crunch hit in Q3 2007 (TeleCity). There is no indication that this situation will improve anytime soon. Although there is still life in the M&A market, it tends to be at the lower levels (as witnessed by the raft of AIM bids recently) rather than in the £500m+ type deals. That’s why many tech intermediaries are really ‘feeling the pain’ right now.
Security. I’m not quite sure if all homeowners are spending more on security – but the Holway household is. Whether its physical security – to our house or ourselves - or warding off cyber attacks, security is of ever increasing concern. . If you want a ‘hot issue’ in tech too, then look no further than security and compliance as evidenced by the likes of Autonomy and Detica or the fact that the UK ID project (in whatever shape) is the only remaining ‘mega’ IT project on the blocks.
Conclusion
Perhaps we should all remember that although property has been a pretty safe ‘long term investment’, returns have varied greatly by region and type of property. I suspect that will be the same in technology. Overall, I doubt that technology will produce wondrous returns. But there will be specific areas which will outperform the market. Unfortunately balanced by those that don’t!
But the need for technology, just like property, is not going to go away. Technology will be a crucial part of the global economy for generations to come.
Accenture faces £182m British Gas writ
The FT today has an article - Accenture rejects British Gas writ - concerning a £182m claim relating to the implementation of its new billing system. The problems surrounding this caused British Gas reputation for customer service to plummet from around the best to about the worse.
Accenture rejected responsibility saying "Centrica directed the design, build and implementation of the Jupiter system and insisted on many of the features they now find problematic."
Given Accenture's high reputation (and attendant financial performance) it is surprising how many high profile IT cock-ups seem to involve Accenture. Eg NHS IT and Sainsbury. Always "Nothing to do with me Guv".
Sunday, 11 May 2008
BT to sell datacenteres to HP?
The Sunday Times carries a report that BT is in £1.5b talks with HP to sell its UK datacentres. to HP. 400 BT staff will transfer to BT. BT will take on the management of HP’s voice and data networks globally. It already runs them in Europe.
"It has 24 data centres in Britain that store vast amounts of information for corporate customers, but demand has been growing exponentially, and BT acknowledges that HP is better equipped to handle the increase. The company is to sign a 10-year contract to continue using the centres."
If true the deal would allow BT Global Services to concentrate on its IT Services type business. It would also leave BT "relatively ungeared". On the otherhand, datacentres are one of the major growth areas of the IT sector right now - one that BT might well have considered part of its natural evolution.
On Thursday, Ben Verwaayan presents BT's annual accounts for the last time. See today's FT - Chief bows out before BT's £10b connection. The FT article talks of difficulties in the implementation of 21CN due to software problems related to Ericsson's i-Node equipment. The expectation for BT's results are not that high. I'm sure Ben would have preferred to bow out on a rather higher note.
Saturday, 10 May 2008
"When will it ever end?"
Another day, another set of bid news and rumour affecting the UK quoted SITS sector.
Intec Telecom Systems issued the usual "approach which may or may not lead to a bid" statement. Shares soared on the news but gave up some of the gain on Friday to end on 54p - 20% higher than the pre bid price. Telecomms software companies are one of the 'flavours of the month" after Axiom and Jacobs Rimmell. See my earlier piece Consolidation in telco software too.
Blinkx also soared on speculation that a) they might list on NASDAQ 2) that they were about to get a bid at 60p from News Corp. However, on Friday Blinkx issued a statement saying that they were unaware of any talks. Even though they gave up some of the gain on the announcememt, Blinkx still managed to end the week 70% higher at 32p. I've declared before that I was a buyer of Blinkx on their IPO last year at 45p. It was my worst performing share of 2007 and managed to compound the misery by being my worst performing share in 2008 YTD too! So, I am just a little happy about this turn of affairs. I have oft said that Blinkx will get bought at a significant premium for its video search technology. I have not changed my opinion!
Misys also benefitted from bid rumour mongering. As the Independent said "vague bid rumours gave a boost to Misys, the software specialist that rose by 9.25p to 174.25p. The chatter suggested that the company may soon be subject to a bid; there were no clues about the identity of the bidder, but the talk bore a price of between 200p and 210p."
Flomerics, perversely, soared 15% to 102p after announcing that its bid talks with Mentor Graphics were off! David Mann (non executive chairman who was CEO of Logica before both Andy Green and Martin Read) however said he was exploring interest from several other parties.
Flomerics supplies simulation software to the engineering and electronics industries with clients such as IBM, Siemens and Nokia. Latest FY revenues were £16.3m with a pretax loss of £1.3m.
Excluding the 'rumours' listed above, bid announcements have been made by 16 UK quoted SITS companies in 2008 to date. A Holway all time record. As I have said before, the only thing that will stem this flood is that we will soon run out of quoted SITS companies to acquire. But not yet. I could easily identify another dozen companies that I reckon could easily become bid targets before too long.
Note - Megabuyte has a very good table of the recent takeovers and current bids which you can download Click here.
How Allen Timpany’s world was turned upside down
After my own piece last Tuesday on the suspension of Vanco shares and the resignation of CEO and founder Allen Timpany, The Sunday Times had an excellent review of Vanco's rise and fall. See Vanco’s race ace spins out of control.
The subtitle - How Allen Timpany’s world was turned upside down - is a pretty salutary "rise and fall" story.
Thursday, 8 May 2008
Sage continues to bore...
Sage's results for six months to 31st Mar 08 showed a 9% revenue rise to £640.4m equivalent to an 8% organic growth in its core business. (ie before the acquisitions of KCS Global Holdings and Tekton Group in the period) PBT and EPS both rose by 9% - thus continuing Sage's unbroken 20+ year earnings growth record - an amazing achievement. This all translated into excellent cash conversion of 123% of EDITDA.
Sage enjoyed a 12% increase in its subscription revenues which now represent 59% of total revenues. This is what underpins Sage's performance and makes earnings so 'predictable' or Boring (as we have so repeatedly commented!) Sage has retention rates of over 80% from its 1.7m customer base. That is the REAL asset behind Sage.
But the performance was not uniform. UK (revenues up 12% to £120.2m) , Mainland Europe (revenues up 17% to £229.4m. France up 9%, Spain up 30% but Germany declined 4% mainly because it had performed exceptionally well in the previous comparable period) and RoW (up 16% to £42.3m) did pretty well.
But the US suffered a minor revenue decline (£248.5m plays £249m last time) This was due to reduced revenues from the troubled Healthcare operations. The appointment of a CEO to head Healthcare is expected "in the near future". Organic growth in North America, excluding Healthcare, was a quite acceptable 5%. Best performance came from their Industry & Specialised Solutions Division - up 6%.
Initial impressions, after just a few minutes reading the announcement, is that these results look good excluding US Healthcare. I'll comment more later.
Wednesday, 7 May 2008
Capgemini Q1 affected by $ and £
Capgemini’s revenues grew by 3.7% (at constant currency) to €2185m in Q1. Unlike US companies, the significant decline in value of the € v $ and £ had an adverse affect. At current rates, Capgemini’s revenues fell 1.4% (from €2214m to €2185m)
Outsourcing grew by 2.9%. Professional Services registering the best performance with 9.0%.
By region, North America grew by 6.1%. In Europe, Benelux grew by 7.6% and France by 5.3%, while the United Kingdom registered an anticipated decrease of 4.5% linked to the expected reduction in revenues from HMRC. Growth in the rest of Europe is led by the Nordic countries and Southern Europe (Italy, Spain, Portugal) which registered growth of over 10%.
Bookings in Q1 2008 amounted to €216m – down marginally compared to €2,203 million in Q1 2007. Consulting, Technology and Local Professional Services did best where growth was c10%
Capgemini reconfirmed its objective of achieving full-year revenue growth of between 2 and 5% for 2008 and to increase its operating margin to 8.5% for the full year.
These results were as expected but the growth rate is hardly exciting – below European GDP once inflation is stripped out.
Tuesday, 6 May 2008
Capita - Boring as ever!
Capita issued an upbeat IMS this morning - See - Capita encouraged by revenue growth - from Reuters. “Businesses across the group are trading well and the market for significant outsourcing opportunities remains buoyant”. In the first 4 months of 2008, Capita secured outsourcing contracts worth c£384m with a particularly strong performance from life and pensions, local government and insurance.
Bid pipeline stood at £2.5b on 29 February 2008. Capita faces no material rebids (greater than 1% of the previous year's revenue) until 2010.
As I've said before, Capita is one of those companies that could (indeed, I think, will) do even better in the current economic environment. As Capita told me, the way they could boost profits and therefore EPS would be to stop selling - they have their current revenue stream contracted for many years hence. What a fantastic position to be in - I'm sure it makes many readers green with envy!
Capita was up 3.5% at 687p on Tuesday on the news making them one of the better performers in Holway's Tech Portfolio in 2008 to date. Which actually translates into the fact that Capita is now back to where it started 2008 whereas most of the others are still suffering losses.
Vanco shares suspended, CEO resigns
Today Vanco’s shares were suspended and Allen Timpany, its founder and CEO, resigned. Basically Vanco has run out of money. On top of that they are going to have to relook at their accounts; the dreaded ‘revenue recognision’ has struck again. Although I’m not for one moment saying they will not "survive" in some guise or other, it seems unlikely that shareholders will get a bean.
I’ve known Allen for many, many years and he has been a guest at my Prince’s Trust ICT Leaders Dinners almost every year. I think I first came across him in my Apple days when he founded Apple dealer Guestel in the 1980s. He then went on to found Tycom and then Wakebourne before buying Vanco for £1 in 1989. He built it into a company that IPOed in Nov 2001 (the only UK IPO in the months after 9/11) . Vanco was a Virtual Network Operator (VNO). In other words it managed international networks for global companies without actually owning those networks itself. Buying the network capacity it needed from whoever. Indeed, that was a pretty cunning thing to do at a time when there was huge network over-capacity. You could get some pretty keen deals for your customers. I well remember BT quoting them as one of their main competitors in the network management market.
Vanco currently has over 200 pretty bluechip customers including British Airways, Siemens, Ford, Avis, Pilkington and Virgin. They work closely with SITS companies like CSC (at Belron), IBM (at Lloyds TSB) and with channel partners such as ARINC in the air transport industry and carriers and communications companies including Verizon, Bell Canada, Bell South, Comcast, AOL and Qwest .
Indeed, all the recent trading statements – even the one issued on 1st Apr 08 – had been positive with a strong order pipeline. The last issued accounts to 31st Jan 07 show revenues of £183m and Operating Profit of £19m. Quite how and why Vanco’s position has deteriorated so quickly is a mystery. I am sure that shareholders will be asking some pretty serious questions about why such positive statements were still being made just weeks before today’s pretty chilling announcement.
At one time in 2006, Vanco shares traded at over 600p making the company worth around £400m. They were suspended today on 64p/£41m. Only a couple of years back Timpany was in the Sunday Times Rich List when the value of his Vanco shares reached around £200m. He still has around 29m Vanco shares today.
Personally I don’t think there was too much wrong with the Vanco model. It was the execution that clearly was wrong. Turning sales into cash seems to have been a real problem and this should have set the alarm bells ringing long ago. I would suspect Vanco will be sold quite quickly for a 'fire sale' kind of price
Googolopoly
Can I commend you to read David Rowan's excellent article on the Microsoft/Yahoo debacle - Who's got the terabytes to smash the Googolopoly - in The Times 6th May 08.
Rowan comes to the same conclusion as I have voiced right from the start: "The marriage would only have failed dismally. Just like AOL's disastrous $103.5 billion merger with Time Warner in 2001 - possibly the most efficient demolition of shareholder value in economic history - the mismatch would quickly have exposed non-existent “synergies”, incompatible business cultures and technology platforms, and raging egos that would have turned on each other as the regulators and shareholders came calling".
Sunday, 4 May 2008
Microsoft abandons Yahoo bid
This weekend it was announced that Microsoft’s revised bid of $33 per share for Yahoo had been rejected and CEO Steve Ballmer announced that he was dropping the bid.
As readers know this was exactly what we had advised Ballmer to do all along. But I doubt this was the reason!
What happens now?
1- Everyone expects Yahoo shares to dive. They were trading at $19 before the bid but nobody expects them to fall THAT far. Walter Price, the fund manager at the RCM Technology Investment Trust (where I am an NED) reckons a $5 fall on Monday from its $28.7 closing price on Friday.
2 - Is this ‘the end’ for a Microsoft/Yahoo coupling or merely a ‘ploy’? Will Microsoft come back with another bid when the share price falls?
3 - What will Yahoo do now? Hopefully they will quickly explore and consummate a deal with either AOL or News Corp (Myspace) or both. I doubt a full blown takeover from Google but fully expect a much closer working relationship. Bluntly, if Yahoo did all that, shareholders might get to the $37-$40 per share they were apparently expecting from Microsoft.
4 - What will Microsoft do now? That’s an interesting one! Bluntly, I have always believed that smaller acquisitions work better. I’d be looking at a range of acquisitions to bolster Microsoft in business systems for SMEs, Cloud Computing, entertainment, social networking and establishing a real presence in Asia and China in particular. I could give Microsoft a list of a dozen companies they could buy for $46b.
I think going after Google head-on in search just isn’t going to work. If you are looking for ‘eyeballs – which was the reason behind Microsoft’s interest in Yahoo – then there are other ways. Buying CNET, Facebook and LinkedIn would give them a lot of very sticky eyeballs.
5 – What will Ballmer do now? I’ve never much liked Ballmer’s management style. Too ‘angry’ for me. This episode looks like a ‘major management blunder' (International Herald Tribune’s words, not mine). I think if I was a Microsoft shareholder I’d be looking at succession planning again because I don’t think Ballmer has what it takes for the next phase of Microsoft.
Anite joins the ever-growing list of UK tech M&A
Hot on the heels of my piece - Just no stopping the bids – last week, we added yet another bid. This time it was Anite. The news pushed the shares up 30% to end the week on 52p – valuing Anite at £178m. Again, it is worth noting that Anite had been a member of Holway’s 50% Club (shares trading at less than 50% their 2007 high) before the bid. The current price is still 45% lower than the high.
Anite has been ‘For Sale’ for a long time – two years? Indeed, their past has been somewhat ‘troubled’. Apart from being another example of the high interest in tech M&A right now, it also illustrates the ‘consolidation’ going on in the public sector SITS companies. I remind readers that in the last six months we have seen both Northgate and Civica being taken out by private equity and last week we reported a bid for IBS. As The Times pointed out, this just leaves IDOX. How long will it be before we are writing about them receiving a bid too?
So why so many bids?
A reader kindly brought to my attention that the Takeover Panel issued a new guidance note in early March (Takeover Panel Practice Statement 20). The key section is #3 which defines the definition of an “approach” which is now being interpreted much broader than in the past by the Panel.
The question the reader raised was whether this was behind the new flurry of bid announcements.
I doubt it but the answer is that it is too early to say. If we now see a significant number of the current bids failing to be consummated, then it is a fair bet that the changed rules will have played a some part.
What I can say is that:
- there were more 'public to privates' in year to 31st Mar 08 than ever
- there was the highest nett decrease in quoted UK SITS companies (only one IPO!)
- M&A activity (by number) continued to be strong in Q1 2008
- some people had expected changes in CGT to affect M&A by bringing fwd deals but I now doubt it had much affect.
I know some of the current deals from the 'inside'. They are clearly ‘serious’ and I can't see that they are that they are anymore likely to get aborted than any deals announced before the new rules came into effect.
Private equity sees the current ‘weakness’ as a buying opportunity and they still have loads of dosh. Several 'cash rich' trading companies see opportunities too. My expectation would be that the current run would be continued and most of the current bids consummated.
Only limiting factor is that we will soon run out of quoted candidates to be acquired!
Micro Focus Going Great Guns
Micro Focus seems to be going great guns right now. Last week they issued their IMS with revenue and profits for the year now expected to be ahead of expectations. Organic revenue growth is expected to be 15% for the year to $226-$228m. EBITDA margins, at 38.4%, are expected to be slightly higher than the 38% recorded last year.
Micro Focus also launched an all cash offer for NASDAQ listed NetManage valuing the company at $73.3m. NetManage provides application modernisation software and generated a loss before tax of $1.7m on revenues of $36m in 2007. Micro Focus expects to improve NetManage’s margins to something nearer its own (see above) although it expects to take a $10m restructuring charge this year to get it there.
I’ve had a soft spot for Micro Focus since CEO Steve Kelly took me to The Vineyard for lunch last year. It’s not that I can be bought just for the price of a Michelin-starred lunch. It’s more that Kelly and I saw eye-to-eye on what were Micro Focus’ core strengths and that its future rather depended on playing to them – not doing loads of rather distracting other stuff. This had been Micro Focus’ problem before Kelly arrived. The policy has certainly worked so far.
I was a bit concerned when COO Mike Shinya departed. I’ve spoken at length to the parties and am convinced that it was a personality issue – not reflecting deeper problems at Micro Focus. Indeed, the trading performance since then has indicated that to be the case.
NetManage is a bold move but it ‘appears’ to be within Micro Focus ‘core competence’ – ie accepting that old Cobolers never die but they do fade away and have to transition into something new from time to time . NetManage seems to help them do just that.
