Atos Origin: tough turnaround for Sema
The $1.5 billion acquisition of most of SchlumbergerSema will help Atos Origin to expand in the lucrative outsourcing and government sectors, and gain the size it needs to compete against larger, international rivals. But the integration of the business will be the biggest challenge that Atos Origin's management team has faced so far.
Paris-based Atos Origin will acquire operations with 21,500 staff, annual sales of $2.6 billion and activities in systems integration, consulting, outsourcing and software development. This represents the bulk of the SchlumbergerSema business, which made overall sales of $2.99 billion in full-year 2002.
Atos Origin is paying $1.47 billion for the target business, which represents a discount of more than 70% on the $5.2 billion that Schlumberger originally paid for the overall Sema business in February 2000. But as part of the planned deal, Atos Origin is also due to get a contract with Schlumberger to provide IT services worth at least $700 million over a possible seven years.
With limited existing cash resources, Atos Origin has negotiated a new $1.03 billion loan facility with three banks. The company's net debt level will reach $860 million following the takeover, and Atos Origin will be wary of the problems encountered by Dutch IT services provider Getronics, which has struggled to repay the debts stemming from its $1.4 billion takeover of Wang Global in 1999. Atos Origin said it will make further disposals of non-core assets next year to improve its debt position.
The price that Atos Origin is offering for the SchlumbergerSema units seems reasonable, and the deal has received a generally positive response from investors. However, it will be taking on a business with low profitability. Schlumberger said that the operations to be acquired by Atos Origin made a net profit of just $6 million on sales of $1.3 billion in the first six months of 2003.
Atos Origin's management team has received praise for the way that it has integrated past acquisitions, particularly the Origin deal. However, the company has not yet digested last year's takeover of the UK and Dutch practices of KPMG Consulting, and attempting to incorporate Sema, whose government-focused UK arm and banking-centric French unit have very different profiles, will be its biggest test to date.
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