Keane redefines itself with acquisitions Keane is another firm that is using ac- quisitions to transform itself. It’s noth- ing new to the former staffing firm that morphed into a Y2K shop by acquiring more than 20 firms between 1986 and the early 1990s. As Y2K revenues evaporated, it snapped up two consultancies with the aim of initially becoming an e-business consultant, then a CRM specialist. Nei- ther acquisition panned out as revenues and profits continued a slide that has only been stopped in 1Q02. Keane’s $135 million acquisition of staffing firm Metro Information Systems last fall has yet to work out, although Metro did contribute $44 million to a $221 million bottom line in Q1. That revenue was slightly less than in the previous quarter, causing some ob- servers to question whether Keane will be able to sell enough applications de- velopment and management contracts to make the acquisition pay off. Keane also has purchased Single Tree Solutions in India to give it an offshore pricing advantage to compete with Indi- an firms entering the US market. The perfect merger? IT consulting execs dream about the perfect merger, but often dis- cover it difficult to find the right partner. “Unless an acquisition fits in the character of a company’s culture, it’s not going to work,” says Watch Hill’s Waugh, who saw the acquisition of Honeywell’s IT services stumble after being acquired by the French computer firm Bull. Cultural differences hurt CGE&Y integration Waugh sees Cap Gemini Ernst & Young wrestling with many of the same is- sues. Not only is there a culture conflict between the dominant European consul- tancy and the largely US-based legacy E&Y partnership, but there appears to be a strong social conflict as well. For instance, immediately after the ac- quisition, a Cap Gemini and an E&Y executive would participate in confer- ence call interviews. Invariably the inter- view would start with the American ex- plaining a new product or service, only to be interrupted and corrected by his French colleague. After a few months of that phone banter, requests for inter- views were routinely referred to London or Paris. ( See story, p.2. ) Even now, CGE&Y employees in the US bridle at restraints placed on them by the Paris office. CGE&Y con- sultants admit privately to GITC that (continued on page 16) AVERAGE VALUE OF IT TRANSACTIONS UNDERMINED BY DISTRESSED SALES 1998 1999 2000 1H01 Average sales price ($mil) of IT consultants $1,000 $800 $600 $400 $200 0 Source: Management Consulting Mergers & Acquisitions report, Kennedy Information Research Group VALUE OF FIRMS PLUMMETED DURING SLOWDOWN Hypothetical firm (with average industry operating profit) PRE-ECONOMIC CURRENT SLUMP ECONOMY Revenue ($mil) $100 $100 Operating profit 10% 6% Earnings multiple 10x (midrange 5x (midrange of 8x to 12x of 4x to 6x average) average) Transaction value ($mil) $100 $30 Source: Updata Capital
Global IT Consulting Report, May 2002. ©Copyright Kennedy Information, Inc., 800-531-0007. All Rights Reserved. Reproduction prohibited by law. I N T E L L I G E N C E B R I E F I N G 16 M&A to drive consolidation among IT firms of all sizes
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