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Summary

On July 23, 2018, Atos announced that it had finally reached an agreement to acquire Indian systems integrator (SI) Syntel for a staggering $3.4bn. Atos had previously tried to acquire Syntel in 2014, but the deal fell through. However, the companies continued to discuss the possibility and after four years their conversations finally reached fruition, proving that conditions had changed enough to warrant a marriage between the two companies.

Syntel significantly boosts Atos’ US presence and its digital services portfolio

Atos has been trying to bolster its presence in the US markets for several years and acquired Xerox ITO in 2015 to gain a greater foothold there. However, Xerox did not have a significant impact on Atos’ digital services business and did not substantially bolster Atos’ digital services capability, which is critical for increasing market share in the US. Syntel brings in a portfolio of proprietary digital solutions, a large India-based workforce, and key US clients such as Amex and FedEx. Atos plans to integrate Syntel’s unique factory model for automating the delivery of digital services into its Business & Platform Solutions (B&PS) unit which – when combined with existing offerings around cybersecurity, cloud, and infrastructure management – will help it stitch together an end-to-end digital transformation suite of capabilities.

Syntel brings several complementary capabilities, especially in the digital services space where it owns multiple proprietary IPs – in particular SyntBots, an intelligent automation platform that has applicability across multiple parts of the SDLC – and a healthy vertical mix that will add to Atos’ portfolio. Atos has a large footprint in verticals such as manufacturing, retail, transport, and public sector, while Syntel has a strong presence in banking and financial services. The nearly billion dollars in revenues – 90% of which comes from North America, a market that Atos has been keen to tap into – is an added bonus and will significantly boost B&PS’ revenues to well over $4bn (which would be approximately 31% of total revenue) once the integration is completed.

Atos’ acquisition of Syntel is strikingly similar to Capgemini’s purchase of iGate in 2015 and is another example of a European SI picking up a mid-sized India-based company to boost their presence in North America. In a way, this deal reaffirms the significant profile that many India-based SIs have in the US and the value they can bring to a larger organization that wants to gain a bigger footprint in the market. In many ways both the matches make sense – we have a European vendor trying to break into the lucrative North American market and a mid-sized Indian SI that is heavily reliant on the US for revenues but is unable to sustain high growth rates due to heavy competition from compatriots – and combining forces is a great way to achieve scale, add capabilities and new client logos, create differentiation, and present a strong and cost-efficient set of offerings for a discerning clientele.

But does this mean that more European vendors should start picking up smaller Indian SIs that specialize in a specific vertical or geography? The answer to that is actually “not really”! Both these acquisitions were planned out carefully over several years, and the acquirers did their homework about what they would be getting into. Without that kind of due diligence and homework, a rushed acquisition or a failure to properly integrate and leverage synergies might do more harm than good, as we have seen in several cases (HP-EDS, for instance).

Appendix

Further reading

Emerging SI Opportunities in IoT, IOT001-000020 (July 2018)

The Future of Enterprise Digital Transformation, ENS002-000039 (July 2018)

On the Radar: Rocket API simplifies modernization of core business applications, ENS002-000036 (July 2018)

Ovum Decision Matrix: Market Leaders in North American Applications Services, 2018–19, ENS002-000026 (May 2018)

"Atos weaves a coherent narrative around transformation across its offerings,” ENS002-000024 (April 2018)

Author

Hansa Iyengar, Senior Analyst, Advanced Digital Services

hansa,iyengar@ovum.com

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