Channel programs News

Capgemini CEO: We Had Been Eyeing Ciber's U.S. Assets For Years

Michael Novinson

Capgemini CEO Paul Hermelin said his company's IT consultancy arm had for years wanted to acquire Ciber's U.S. operations in hopes of rapidly transforming the struggling business.

But the Paris-based company, No. 6 on the CRN Solution Provider 500, had resisted those calls given Hermelin's characterization of Ciber as a "complex animal" with tentacles stretching into Holland, the United Kingdom and other locations around the globe.

"Even though Sogeti [Capgemini's IT professional services subsidiary] was really hungry to acquire the U.S. part, I never wanted to enter a complex integration," Hermelin told financial analysts during the company's earnings call Wednesday. "But with the bankruptcy, we had the possibility to buy only the U.S. asset."

[RELATED: Ciber Files For Chapter 11, Takes $50M Capgemini Bid To Buy North America, India Assets]

Greenwood Village, Colo.-based Ciber, No. 43 on the CRN Solution Provider 500, filed for Chapter 11 bankruptcy protection on April 10 and entered a $50 million "stalking horse" agreement for Capgemini to purchase its $275 million North America and India businesses. The sales process is subject to higher and better offers, according to the companies, and has to be approved by the bankruptcy court.

"They [Sogeti] were eyeing Ciber for years more than I, and it proved actionable at a reasonable price," Hermelin said.

Hermelin said he has "the utmost confidence" that the integration of Ciber into Sogeti would proceed very smoothly since both companies operate under a network of geographic city branches. Ciber and Sogeti enjoy the same six geographic hubs in the United States, according to Hermelin.

"It's a very decentralized model that is very effective," Hermelin said.

Ciber's appeal was enhanced by the company's low offshore ratio, Hermelin said, which could come in handy if the Trump administration makes it more difficult for firms to bring in foreign workers under the H-1B skilled worker visa program. Ciber also brings solid client references in the automotive, telecom and media spaces, Hermelin said.

Acquiring Ciber will also lower the average price of Capgemini's assets, Hermelin said, providing the company with a "very reasonable" portfolio of high-value and low-value assets.

Once the deal is official, Hermelin said Capgemini would take a few months to restructure Ciber's assets, and then integrate the company with Sogeti on a geographic basis. Capgemini's acquisition of Ciber is expected to close by the end of June, the company said.

Capgemini expects to undertake cost rationalization measures to return Ciber's U.S. operations to profitability, Hermelin said. Ciber should be contributing to Capgemini's earnings per share growth by the first half of 2018, according to Hermelin.

"So far, we have been very selective in our acquisitions, and we believe we can continue to buy very valuable assets for a reasonable price," Hermelin said.

Capgemini saw sales in the quarter ended March 31 jumped to $3.45 billion, up 2.6 percent from $3.37 billion in the same quarter last year, thanks in part to strong growth in Capgemini's financial services and manufacturing segments.

Capgemini's stock climbed $1.79 (1.79%) to $101.29 per share in trading early Wednesday. Results were announced before the Euronext stock exchange opened.

Capgemini's North American revenue climbed to $1.06 billion, up 3.6 percent from $1.02 billion the year prior due to momentum in the manufacturing and financial services verticals and continued recovery in the energy and utilities vertical.

Sales from the United Kingdom and Ireland plummeted to $473.6 million, down 17.1 percent from $571.6 million the year prior due to a weakening of the pound and an anticipated decline in public sector engagements.

Capgemini's French revenue grew to $725.1 million, up 5.2 percent from $689.2 million last year thanks to nearly double-digit growth in the financial services, manufacturing, commerce, distribution, and telecom sectors. Revenue from the rest of Europe climbed to $915.6 million, up 7.9 percent from $849.2 million as Germany, Scandinavia, and Italy led the way with roughly 10 percent growth.

Sales in Asia-Pacific and Latin America soared to $279.8 million, up 18.9 percent from $235.2 million as strong growth in Asia-Pacific was partially offset by a decrease in activity in Latin America. Capgemini has also decided to discontinue its equipment resale activity in Brazil, which contributed about $65.3 million of revenue in 2016.

Application services revenue – which represents 61 percent of Capgemini's business – grew by 5.3 percent after factoring out changes in foreign currency exchange rates, thanks to market demand for digital and cloud-based application offerings.

Revenue from other managed services – which represents 19 percent of Capgemini's business – tumbled by 7.6 percent on a constant currency basis due to the impact of declining sales in the U.K. public sector on Capgemini's infrastructure services business. Business process outsourcing and platforms revenue were stable in the first quarter, Capgemini said.

Technology and engineering services sales – which represent 16 percent of Capgemini's business – increased by 5 percent on a constant currency basis with a return to growth in France and progress across all the company's regions.

And consulting services – which make up 4 percent of Capgemini's business – skyrocketing by 10.6 percent on a constant currency basis fueled by digital transformation demand in Continental Europe.

Digital and cloud sales – which represented 32 percent of Capgemini's business across all units – grew by 24 percent in the quarter on a constant currency basis thanks to an end-to-end service portfolio reinforced through acquisitions and management consulting capabilities to foster business with the C-suite.

For all of 2017, Capgemini said it expects sales to grow by 3 percent on a constant currency basis.