IBM has gobbled up the local operations of Logicalis in a deal worth $88.5 million. The move has positioned Big Blue to fill a hole in its network services repertoire, according to IDC’s Phil Hassey, associate research director, services for consultancy.
“The Logicalis grab means IBM is now in a good position to have a major presence with telecommunications companies,” Hassey said.
The new entity would likely give Dimension Data a run for its money, he said.
Logicalis A/NZ is a provider of ICT integration solutions including the design, deployment and management of ICT infrastructure.
The company subcontracted to major telcos, Logicalis Australia managing director, Stuart Hendry, said. It was also strong in government (federal and state), and in the legal arena.
A subsidiary of Datatec, a Johannesburg Stock Exchange (JSE)-listed networking, technology and services group, Logicalis employs more than 300 staff in Australia and New Zealand, and has partnerships with technology players including Cisco Systems and IBM. The relationship with IBM began in 1998.
With the latest company purchase, IBM could push further into the IP telephony realm, general manager of integrated technology services (ITS), Terry Maloney, said.
“We think IP telephony is a crucial area of development, and it’s moving from early adoption to the mainstream,” Maloney said.
IDC’s Hassey said IBM could now further capitalise on the growing push towards converged voice and data networks.
“Given the Logicalis relationship with Cisco, IBM can take advantage of the growing acceptance of VoIP technology,” he said.
The network consulting and integration market was expected to be worth $595 million by 2006, IDC said.
“IBM is a very smart and large company that sees a growing opportunity around the network services environment,” Hassey said.
With Logicalis under its wing, IBM would also make a play for the mid-market managed services realm, Hassey said, indicating players such as Telstra and Optus already had a stake in the ground, and a head start thanks to good brand recognition.
But Hendry said IBM wouldn’t compete head-to-head with Telstra and Optus.
“We’re not competing with Telstra and Optus on core offerings,” he said. “We’re working for them or alongside them, delivering network services around IP, security and managed services.”
General manager of IBM Global Services Australia, Brendon Riley, said the acquisition enhanced IBM’s ability to deliver business value to clients of all sizes.
“Over the past 20 years, Logicalis has built a world-class reputation as a leader in network services,” he said. “The acquisition of Logicalis enhances IBM’s capabilities in network consulting and integration — an area that our clients have identified as fertile ground for business transformation projects.”
As part of the realignment, Maloney said Logicalis would be merged into the ITS unit.
Getting down to business
Slated for completion by June, the network service workers will join the ITS network services team, while the hardware and software maintenance workers will join the ITS hardware and software business.
And while the company was in the midst of planning logistics, Maloney said IBM planned to maintain Logicalis offices in Melbourne and Sydney.
“We are looking at all of our options,” he said.
Datatec’s interim report date of August 31, 2003 said Logicalis A/NZ represented 26 per cent of Logicalis’ consolidated revenue and 25 per cent of its net assets.
Chief executive of Datatec and Logicalis, Jens Montanana, said that, until the IBM offer, there had been no intention to sell Logicalis A/NZ.
“These operations were central to our integration and services strategy internationally,” he said.
“However, the nature and value of this unsolicited offer was very compelling, particularly given that the suitor was IBM and the payment is entirely in the form of cash.
The Datatec board is of the opinion that the disposal will enhance shareholder value.”
The transaction comprises a cash consideration of $46 million for the shares and a repayment of intercompany loans and payables amounting to $20 million.
The effective date of the transaction is March 1.
There are no conditions precedent in the sale agreement between Logicalis and IBM.
The proceeds will be used to strengthen the balance sheet of the group and for potential acquisitions.
The Logicalis A/NZ operations were originally formed through the acquisition and merger of Anite’s operations in Australia and New Zealand, CNI and later CSI.
The transaction value represents a significant return on the total cost of developing the region through a series of acquisitions which started in 1997, the company said.
“The transaction represents a significant realisation for Logicalis Group after a number of years of cost-cutting and restructuring internationally,” Montanana said.
“The deliberations that we went through in considering this transaction necessitated a strategic review of where and how the group should be positioned.
To that end we have decided to focus our management and financial resources on the US and UK markets.
“We believe that by investing further in these areas we will be able to create a sharper focus, and, over time, extract superior returns in these two geographies, where we have considerable experience and scope for growth.”