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Author: Katharina Grimme
12 December 2006
Fujitsu Services yesterday said it has agreed to acquire General Atlantic's controlling stake in German IT services group TDS for around €61 million. The contract will become effective after antitrust clearance. Further shareholders have offered to sell their shares to Fujitsu alongside General Atlantic, taking Fujitsu's shareholding to 79.1%. Fujitsu Services is paying €2.80 a share - a premium of 14% on the last trading price on 8 December 2006.
Comment: This acquisition is small but not especially cheap - Fujitsu has taken on TDS's liabilities which at last count stood at €35 million. It must be seen as a strategic move for Fujitsu Services to increase its footprint, visibility and brand in Germany General Atlantic has for some time, sought a buyer (see EuroView Daily 3 July 2006) while Fujitsu Services has wanted to strengthen its position in continental Europe to counterbalance its strong focus on the UK.
For Fujitsu Services, this is a step in the right direction, albeit a small one. With around 720 employees, TDS had FY 2005 revenues of €93 million - and the same is expected for FY 2006. The combined operation will generate nearly €140 million in Germany (TDS also generates around €9 million in Austria and Switzerland). It more than doubles Fujitsu's size in Germany, but in order to enter the top 10 IT service players in Germany, it must still nearly triple in size.
So with Fujitsu Services' goal of becoming a Top 5 player in Germany, further acquisitions are clearly on the cards. Including TDS, the company's German revenues will rise to 4% of total revenues - but this is still significantly lower than the UK (66%), Nordics (12%) and Spain (7%).
TDS's performance is mixed. It managed to overcome its financial difficulties and could significantly improve profitability in 2006 through drastic cost cutting. Revenues are currently flat, and the question is whether Fujitsu Services can bring any revenue synergies to the table. While Fujitsu is mainly a desktop services player in Germany, TDS has capabilities in datacenter services, SAP hosting, SAP consulting and HR BPO (notably payroll and HR administration), and offers full outsourcing for mid-sized, local companies which have little or no international operations.
While the service portfolios are certainly complementary, there's no proof that the whole is more than the sum of the parts. While SAP consulting skills are an asset, they are a 'must have' rather than a differentiator. We doubt if onshore German payroll expertise can be exploited elsewhere. On the other hand, TDS strengthens Fujitsu's position in financial services and retail, and offers an interesting foothold in manufacturing, pharmaceutical and chemical.
What are the implications for the German competitive landscape? In the short term, nothing major. Foreign players clearly still feel the need to break into this large but slow-growing market. That will feed price and competitive pressures, making it ever harder for players to differentiate effectively. Fujitsu Services is yet another player aiming to tap into the potentially lucrative Mittelstand (mid-market). In the past, most of the large players have failed to fulfil their high expectations. We wonder if Fujitsu Services/TDS can form an exception to that rule.
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