GECITS succumbs to corporate dollar

GECITS succumbs to corporate dollar

When push comes to shove, only outsourcing companies appear to survive. Computer Sciences Corporation's (CSC) acquisition of GE Capital Information Technology Solutions (GECITS) last week ends a turbulent ride for the integrator once billed as the corporate Godzilla.

CSC pitched the deal, however, as a move that extends its reach into the services and supply area, especially in the mid-market sector, and creates Australia's latest billion-dollar company.

ARN reported on June 10, 1998 that GECITS expected revenues of several hundred million dollars, just two years after acquiring troubled IT services company Ferntree - a move that added $220 million in reseller revenues alone.

Integration of Ferntree's hardware business caused a number of ongoing headaches, according to industry reports.

However, GECITS did subsequently build up its services revenue, in particular in the SAP implementation business.

GECITS's general manager, Mike Shove, described his company's attraction as being in the sweet spot of the 500 to 5000 seat mid-market segment, and as well as a growing integration business, it has developed a strong and growing base of SAP clients and associated expertise.

But despite the apparent strength of the Australian operations of GECITS, it could not resist CSC's appetite for acquisition, in a deal that instantly creates a $1 billion IT services-focused organisation.

It places CSC clearly into the size and scale of EDS and IBM Global Services in the Australian market.

But for other leading Australian integrators, the ramifications of the cross-pollination of outsourcers, integrators and resellers presents some uncertainty as outsourcing companies start to occupy their market space.

Origin's CEO, John Gallagher, welcomed CSC's acquisition of GECITS saying it takes one more competitor out of the market.

He warned that it will not be an easy process for CSC though. "They'll have to manage the acquisition process very well, as it takes a lot of focus, both for the acquiree and the acquirer."

Gallagher was in no doubt about the current cannibalistic nature of the outsourcing and services sector.

"Being a smaller organisation, we have the advantage of being quicker to respond to opportunities as they arise. But there's no doubt that the pace of acquisitions will increase [in the outsourcing environment] because it's costly to compete with the giants of the industry."

Gallagher rejected the notion that Origin itself is an acquisition target, claiming it is effectively competing with the big boys.

"We're constantly coming up against the likes of IBM [Global Services], EDS and CSC, so we are actively in acquisition mode at present," he revealed. "Being 98 per cent owned by Philips, a $48 billion company with deep pockets, we are a division that it wants to grow, and it has already rejected offers from other [global outsourcing] organisations.

"We are actively progressing with our own acquisition plans," Gallagher added, although he indicated that with companies like BHP IT, Origin would only be interested in certain components.

John Grant, managing director of Queensland integrator Data#3, was unsure about the ability of outsourcing companies to enter the integrator space.

"I know there have been some moves by the big five [outsourcing companies] to get into reselling, but I don't know if they know the business," he said.

One difficulty he can see with CSC's latest acquisition is how it will organise the hardware fulfilment part of the business, given outsourcing companies tend to avoid it because of conflicts of interest.

But despite this there are some "obvious synergies" between the two companies.

According to the companies, the acquisition stems from an international $300 million, 10-year outsourcing agreement.

As an extension of the international outsourcing agreement, in which CSC is managing GECITS' mainframe and midrange data processing operations in Europe, the organisation will also manage some of GECITS' data processing operations in Australia.

One executive from a leading Australian integrator, who asked not to be named, commented that he believes this deal is an isolated incident and not part of a wider trend by outsourcers to buy up integration companies.

He believes that because the deal is based around the consolidation of GECIT's worldwide data centres, it represents a logical business move rather than a significant catalyst for industry change.

CSC will acquire GECITS' customers and 800 permanent staff and 200 contractors, the company reports.

According to CSC's director of marketing, Donna Bullock, CSC knows how to make an acquisition.

"We look at the potential for complementary components and cultural compatibility," she added.

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