Is there a crisis in growth financing?

(By Philip Carnelley, 4 Nov 09, 11.30) Together with a good number of HotViews readers, we attended a Knowledge Peers event on the issue “Is there a crisis in growth financing?” (see Prestige networking event for growth company directors). Speakers/panellists included successful entrepreneurs Ian Gott of BPM company Nimbus and John O’Connell (who readers will know well), plus Andrew Garside of ISIS Equity Partners and Robert Donaldson of Baker Tilly.

The panellists generally agreed that “crisis” was an overstatement, but that things were tough. Banks are generally only lending to large clients and have tightened terms dramatically – to the extent that PE financing can be cheaper. The plethora of Government schemes were felt to be of limited use. However, contrary to what may be thought, PE firms (there are over 200 in the UK) still have a considerable amount of money to invest. But, they want to lend on the right terms, and the lack of bank finance is a considerable hindrance. In an interesting development therefore, PE firms are starting to fund "whole deals" because of the absence of gearing. That means they have to accept a blended return, as they are supplying both the debt and the equity. It was generally agreed that PE financing is an expensive way to finance a business – but may be the right or indeed the only way. Meantime the public markets are closed ‘except to the biggest.’

The most contentious issue debated was whether PE firms are too narrow in their expectations. Several attendees thought that PE firms are falling short, in three ways: by being reluctant to back companies run by non-middle-class professional men (there was some consensus on this); by insisting on unreasonable terms (this was hotly contested); and by always expecting owners to trade control for growth funding.

PE firms, attendees said, need to recognize that entrepreneurs “come in all shapes and sizes.” But it was pointed out, private equity is finding returns are minimal, and risks high; while many owners have unrealistic expectations of their worth, a considerable barrier to deal-making. Also owners often do not look hard enough at the cultural fit with potential backers before signing a deal.

To conclude, we leave you with a thought from Robert Donaldson: reviewing the current situation, he said that entrepreneurs needing funding need to get used to the current conditions: for to a large degree, they are here to stay: “This is the new normality – the age of equity.”

Capgemini reports “sharp reduction in corporate IT spend”

(By Richard Holway 8.00am Thurs 5th Nov 09) Logica’s results yesterday (See Logica “stable”) now look pretty good compared with Capgemini’s IMS for the three months to 30th Sept 09. Rather than my words, let me quote the opening paragraph of Capgemini’s release:

“The decline in the economic environment in Q3 fuelled a sharp reduction in corporate IT spending. Against this challenging backdrop, Capgemini reported revenues of €1.946b, down 9% on Q3 2008 (constant currency and like-for-like)” .

These results were much worst than expexted (last night the 'concensus' was a 3% decline) and Capgemini shares slumped 5% on opening this morning.

In other respects, the Capgemini results mirror not just Logica’s results but the general trends we report so often here at TechMarketView:

• Outsourcing was, yet again, the redeeming feature; recording ‘just’ a 2.7% decline.
• Consulting and Professional Services were the worst hit
• UK was the best performing region – growing 1.5%. France fell 9.9% and North America down 7.3%.

The immediate outlook looks grim too with “a similar decline to be recorded in Q4” although “there are signs that activity is stabilizing and even picking up in some market segments”.

We will comment further when more detail is forthcoming. But anyone looking for signs of recovery in the mainstream SITS areas outside of outsourcing will be sorely disappointed by the results from one of the top European bellwethers.

EU likely to stall Oracle’s Sun takeover

(By Philip Carnelley, 4 Nov 09, 11:00) The FT reports this morning that it believes that the EU is going to make a formal objection to Oracle’s proposed takeover of Sun. This is not good news for Oracle, but there’s little it can do at this stage. The irony is that the EU’s concerns are about Oracle’s acquisition of the MySQL open source database, which we’re quite sure was low on Oracle’s agenda when it bid for Sun. So Oracle may even offer to cut MySQL loose; we’re sure it won’t be a deal breaker. But as we have already commented (eg Oracle takes up the Sun server cudgels), the problem for Oracle is that Sun is currently in free fall and delays in closing the deal only make matters worse. Oracle certainly doesn’t look likely to get the company it thought it would, back in the Spring. Maybe it will try to renegotiate the Sun deal?

Cisco and EMC combine to form Acadia, take on HP and IBM

(By Philip Carnelley, Nov 4 2009, 11.00) Cisco and EMC (which includes VMware) have launched a joint venture called Acadia to offer bundles of equipment and services to corporate data centres. Bundling networking, virtualisation and storage – together with the expertise to put it all together – makes perfect sense, and could create serious competition for IBM and HP. Cisco has long tried to broaden its reach in the computing space and the addition of the EMC/VMware offerings could provide the key. Sales of the technology bundles - productised as "Vblocks" - are expected to come via partners, including Accenture, CSC and TCS. The companies are positioning this venture as providing “private clouds” – though in our opinion, a private cloud is just a modern data centre using the latest virtualisation technologies. Meantime, the FT reports that HP is planning to launch, later today, a very similar vision to that of Acadia, using its own products. The battle will be fierce.

NHS IT procurements in the South set for January

(By Tola Sargeant, Wednesday 4 November, 09:30) Having painted a gloomy picture of the world of NHS IT over the last couple of weeks in our previous post (see November NHS IT deadline draws near for BT and CSC), there was a flurry of more positive announcements yesterday. The most significant news for our readers is that the series of procurements of healthcare IT systems for the South of England are due to take place in January 2010 using the Additional Supply Capability and Capacity (ASCC) framework (see also NHS IT Localisation: A world of opportunity?). The procurements, which could be worth as much as £1b to suppliers, are likely to cover patient administration systems and a range of clinical and departmental systems. They are desperately needed to fill the void left by Fujtisu, which had its contract with the National Programme for IT in the NHS (NPfIT) terminated in April 2008.

In another positive step, the Department of Health has spelt out the criteria against which Local Service Providers BT and CSC will be judged come the end of November deadline for progress on the deployment of their patient record systems under the £12b NPfIT (see here for more detail). Don’t hold your breath come the end of November though – there is likely to be plenty of internal debate over whether the criteria have been met and we’re unlikely to get a decision before 2010. On a related note, industry newsletter E-Health Insider reports that NHS Bury has finally gone live with its implementation of iSoft’s Lorenzo (Release 1.9). The deployment is a vital step on CSC’s road to meeting its ‘success criteria’ and the LSP will be hoping all goes smoothly over the next few weeks as the system beds in.

Logica stable

(By Richard Holway 8.00am Wed 4th Nov 09) Logica’s IMS for Q3 to 30th Sept 09 shows revenues down 4% on Q2; at £2.73b, that’s 3% down YTD.

The picture is now pretty familiar:

- Outsourcing was the star driver. Up 11% in both Q3 and YTD. Looks like order intake is strong too as Book to Bill is 103% YTD.
- Consulting and Professional Services suffered a 12% decline “based on lower volumes and pricing agreed in the first half”. In other words, new projects are hard hit and companies are demanding ‘More for Less’ squeezing rates.
- UK put on the strongest performance – up 7%
- The Nordics (Logica’s biggest geography) was down 2%, France down 5% but Benelux down a whopping 23% .

It was particularly interesting that Logica is taking another stab at cost cutting; putting aside a further £20m provision for 2009 (total now £145m) resulting a total headcount reduction of 2200 since the start of 2008. Perhaps the clue is that Logica’s attrition rate is ‘only’ 7% compared with a 12% decline in its main ‘people-based’ activities.

Even more interesting was Logica’s ‘slowed addition of headcount in offshore and nearshore centres reflecting weaker market demand”. At 5275 – 13% of the total workforce – Logica does not expect this to change anytime soon. I’m sure my colleague Anthony Miller (who is on a well earned holiday at the moment) would have had much to say about this. But I have to say that I have heard this kind of comment from quite a few others recently. The cost gap between offshore and onshore has narrowed because of the economic downturn. Clearly that same climate means more availability of skilled onshore staff.

I see nothing in the Logica IMS to indicate any change in the SITS climate or outlook. (Readers will know that since Q3 2007 we have said we do not see an up-tick in SITS spending until H2 2010) Everything ‘new’ (people, projects, software) is still in the doldrums. Outsourcing and everything connected with ‘More for Less’ and cost saving is ‘the place to be’. In that respect, Logica is a microcosm of the market as a whole. Where Logica can be given credit is their UK performance. Here Logica makes 63% of its revenues from the Public Sector – about twice the UK SITS market share. Public Sector revenues were up 13%. This high reliance on Public sector could be risky with a change of Government. UK private sector revenues did nothing more than “stabilise”.

Logica shares have opened up 5% at 120p.

Alterian grows as North America recovers

(By Philip Carnelley, Nov 4 2009, 09:00) Marketing analytics and content management vendor Alterian has reported revenue up 40%, to £14.4m, for the half year to 30 Sep. The company showed an adjusted operating profit of £255k, but an operating loss of £259k – a big improvement on the previous year’s loss of £2.3m, which included £1m ‘pre-integration costs’. Net cash rose from £5.7m to £7.3m despite the Techrigy acquisition.

The big revenue jump was in part due to acquisitions (Mediasurface, back in July 08, and Techrigy), and also exchange rates: at constant currency (ccy), revenue was up 28%. But it’s a good performance, as we anticipated at year end (Alterian rises with Mediasurface). Alterian showed growth in all regions: North America was slightly weaker than other regions with 18% growth (ccy) – but as last (full) year’s figure for the US was just 2% growth ccy, that’s a big improvement.

The key to Alterian’s success is its focus on the marketing vertical. A functional product is just the table stakes. In a crowded market – and analytics and content management are some of the most competitive software markets in the world, with a plethora of competitors ranging from niche specialists to IBM and Oracle – then differentiation has to come from specialisation. Alterian is playing this game very well.