The proposed acquisition of SMS Management & Technology (ASX:SMX) by fellow IT services firm, DWS Group (ASX:DWS), is set to see a shake-up in the boardroom and among the companies’ C-suite.
In a scheme booklet on the deal lodged with the Australian corporate regulator, the two companies flagged the areas in which they expected to see synergies – or cost savings – arising from the completion of the acquisition.
In the firing line are SMS board costs, duplication in senior management roles, such as CEO and CFO, registry and listing costs, and back office costs.
“It is DWS’s intention that, post-implementation, the current board of SMS will be replaced with DWS appointees, and that [DWS CEO] Danny Wallis will be the CEO and managing director of the merged group,” the scheme booklet stated.
“One of the key benefits of the scheme is the potential for the merged group to realise an estimated $5 million of annualised pre-tax cost synergies, which are expected to be achieved within 12 months following the implementation.
“The one-off implementation costs to realise these synergies are expected to be approximately $1.6 million,” it said.
While SMS managing director and CEO, Rick Rostolis, might be looking at a change to his title and role if and when the deal is completed, he is set to receive a $600,000 cash incentive payment on the closure of the deal, with $873,000 to be shared between six other SMS employees.
Other synergies are expected to arise from revenue and cost benefits from operational improvements.
“The greater scale of the expanded workforce may provide the opportunity to explore other efficiency gains, including adopting DWS’s operating methodology,” the documents stated.
The $124 million acquisition, which was announced in late February, is expected to result in a combined workforce of approximately 2000 employees in Australia, Hong Kong, Singapore and the Philippines, and more than $460 million in combined annual revenue.
DWS has indicated that the acquisition is expected to see the combined entity break into areas of the market the companies, as individual entities, could have previously hoped to service.
“The acquisition of SMS is consistent with DWS’s strategy of expanding its product and service offerings, and enhancing its ability to cross-sell services to clients,” the companies said, in the scheme booklet.
“As a merged group, the range of products that can be offered to clients will be increased and the larger scale of operations will allow the merged group to bid for and seek to win larger projects that may not have been possible for SMS and DWS.”
However, the merged group’s core competency will continue to be IT consulting services, comprising of a range of complementary services, including recruitment and managed services.
“The combination of the workforces will increase the scale of the workforce and the geographic presence of the merged group,” the companies said.
Far from resulting in mass layoffs, the companies expect the proposed acquisition to result in minimal job cuts, with an estimated 15 full-time equivalent roles likely to become redundant, predominantly from back office operations.
“DWS management expect the impact of the overlap between DWS and SMS will be limited,” the documents showed.
Post-implementation, however, the management of the merged group will undertake a review of future staffing requirements of the merged group. Subject to the outcome of the review, some staffing requirements across the merged group may change.
That said, DWS does not, at present, have any intention to make substantial staffing changes to the merged group other than in relation to the synergies already noted.
At the same time, the companies pointed out that, given SMS’ reliance on the expertise of its employees, failure to retain staff may impair client relationships, while the loss of expert staff with unique skill-sets could hamper the ability to deliver specialised advice.
“Additionally, SMS’ growth and profitability may be limited if a significant number of key personnel leave and SMS is unable to attract new suitably qualified personnel,” the document stated.
The deal, if completed, will see SMS removed from the ASX. DWS, on the other hand, would remain a listed entity on the ASX, and become the ultimate holding company of SMS and its subsidiaries.
The deal follows the multimillion-dollar acquisition by DWS of user experience (UX) digital design and innovation consultancy business, Symplicit, in 2015.