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What’s going on in Texas with Atos?

TBR’s Patrick Heffernan and Boz Hristov share highlights from a November 2018 visit to Texas to hear directly from Atos and Syntel executives on their strategies and expectations for 2019. Boz brings up Atos’ competitors and how the acquisition of Syntel could change the competitive landscape. Patrick discusses what scale will mean for Atos and how a client’s comments during the event demonstrate how critical this Atos-Syntel pairing could be.

 

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North America incumbents be aware: Atos is ready to fight

The most telling quote during the two days spent with Atos and Syntel executives came from newly arrived Atos North America CEO Simon Walsh, who noted the company’s struggles with cross-selling IT services prior to the acquisition of Syntel: “We have been challenged in cross-selling based on some capability gaps in our regional services portfolio. Now we have them.” Those last four words say it all: Now Atos believes it has end-to-end IT services capabilities, from infrastructure to applications, spanning all clients’ IT services needs.

The name of the game for Atos is scale

With the acquisition of Syntel, Atos gained substantial applications capabilities in the U.S., along with new clients, new talent and new opportunities to expand. TBR has covered the acquisition in our quarterly full report on the company and a recent blog post. The Dallas event increased our understanding of the acquisition’s impact on Atos overall, including how Syntel brought a missing element to Atos’ North America offerings, allowing the company to now credibly claim end-to-end IT services capabilities at scale. This last point — scale — became a repeated theme from Atos and Syntel executives, who acknowledged that previous acquisitions, such as Xerox’s ITO practice, helped the Paris-based company expand in the U.S. but did not adequately expand its range of offerings. Prior to purchasing Syntel, according to Atos leaders, the company could do a “handful of projects in North America,” but infrequently engage in multiple large projects simultaneously. With the Syntel asset, Atos can now tell its customers it can “do small $1 million deals” and tell Syntel customers it can “go to scale” with them. Atos executives repeatedly said a more complete set of end-to-end capabilities would allow them to assist clients in transforming their IT and broader digital environments at scale. Again and again, Atos and Syntel leaders emphasized that the combination of infrastructure and applications allowed the joined companies to finally provide the needed scale that would accelerate revenue growth.

 

Atos hosted a dozen analysts and three clients at its Dallas-based Business Technology & Innovation Center for a wide-ranging discussion of the recently closed Syntel acquisition. Over an informal dinner, formal presentations, extensive Q&A sessions, and well-managed one-on-one sessions with various Atos and Syntel executives, Atos provided TBR multiple opportunities to ask pressing questions on various aspects of the deal, including details on the implications for current clients, expectations for Atos North America, and the Atos-Syntel strategy going into 2019.

Atos expands reach in North America through the acquisition of Syntel

On Oct. 9, Atos completed the acquisition of Syntel, adding close to $1 billion in revenues, 89% of which were generated in North America in 2017, as well as over 23,000 employees. This month, TBR analysts will travel to Dallas to hear further details on Atos’ plans with Syntel and further assess what this will mean for Atos and its competitors.

Syntel expands Atos’ transformational capabilities in North America

Syntel provides critical scale for Atos’ Business and Platform Solutions (B&PS) division in North America and enables Atos to expand its digital transformation activities in the region. As Syntel’s revenue is fully driven by B&PS activities, such as in digital, automation and robotics, the acquisition will enable Atos to diversify its revenue in North America, which has been largely reliant on Atos’ Infrastructure and Data Management (IDM) division. Selling Atos’ offerings in cybersecurity, big data and IDM to Syntel’s acquired client base as well as offering Syntel solutions to Atos’ global clients and pursuing large-scale holistic digital transformation projects will drive revenue growth for Atos through 2021.

Syntel’s intelligent automation tools enable Atos to deliver cost-effective solutions to clients

Atos expects to generate $120 million in cost synergies through the acquisition, which, together with the addition of Syntel’s efficient business model, will boost Atos’ profitability. While G&A rationalization, real estate management and procurement will drive cost synergies, the main lever will be the rollout of Syntel’s delivery model for Atos’ large B&PS accounts, which make up $1.3 billion in annual revenues and 36% of B&PS revenue. Notably, Atos plans to adopt Syntel’s delivery model and integrate its processes; tools, such as intelligent automation tools called SyntBots; metrics; and 18,000 employees in India to improve Atos’ cost base and augment B&PS operating margin, which was 7.4% in 1H18.

Atos increases cloud services opportunities

Reinforcing its cloud capabilities through the acquisition of Syntel enables Atos to expand client reach in North America and increase hybrid cloud orchestration activities. Atos has already rebranded Syntel to Atos Syntel, which is now a separate Atos brand, and Syntel’s Cloud Services offerings are being marketed to clients as Atos Syntel Cloud Services. Syntel provides Atos with added expertise from more than 50 cloud projects and cloud services offerings that better enable Atos’ enterprise IT solutions to deliver a “digital backbone” to clients. The Atos Syntel Cloud Services offerings are supported by Syntel’s IP-based accelerators and automation tools such as the SyntBots. TBR expects Atos will work toward a unified cloud services portfolio by integrating Atos Syntel Cloud Services with Atos’ existing cloud capabilities, such as Atos Canopy Orchestrated Hybrid Cloud.

Atos is an expert in integrating acquisitions, such as that of Syntel

Let’s look at Atos’ track record on acquisitions: Following its strategy to add digital technology capabilities and intellectual capital, and augment its position in e-payments, the company acquired seven companies during 2017 and announced three acquisitions in 2018, two of which — Syntel and Air-Lynx have closed — while SIX Payment Services is pending approval. The company has a history of successfully integrating acquisitions, some small and others large, such as Siemens IT Solutions and Services (SIS), which added approximately 28,000 people to Atos in 2011. SIS had experienced lingering revenue declines and low profitability levels; however, during the integration process, Atos was able to restructure SIS so that Atos’ profitability was not negatively affected and improved in the following years. TBR expects Syntel will have an overall positive affect for Atos in terms of client reach; expanded solutions capabilities, especially around digital, cloud and automation; and profitability. Syntel, which had an operating margin of 25% in 2017, driven by efficient and automated processes, will boost Atos’ profitability as Atos adopts Syntel’s model of operations in B&PS.