Merger creates ‘market leader' in Sweden
On an analyst and media call today, both Tieto and EVRY CEOs highlighted that the geographic footprints of each firm are extremely complementary.
Both firms are longstanding market leaders in their home countries. While Tieto's largest revenue segment (43 per cent) comes from its home country of Finland, EVRY similarly draws most of its revenues domestically in Norway (61 per cent).
But both companies have historically been seen as challengers in the Swedish market - until now. The merger creates a €1.03bn operation in Sweden, which will make it the leading digital IT services company in the Swedish market.
Possible layoffs to achieve €75m in cost savings
The CEOs constantly pointed to plans to make €75m in annual cost savings following the closure of the merger. Tieto CEO Kimmo Alkio pointed to driving efficiencies in sales, procurement and administrative expenses as well as making rationalisations in its portfolio and investments.
The Tieto CEO was tight-lipped about which areas of the business will see the majority of the cuts, but he did not rule out potential layoffs or redundancies across its combined workforce.
Alkio said that both companies have been hiring aggressively in their high investment areas such as digital consulting and cloud infrastructure.
"We believe they're very typical synergies that are easy to estimate. It has to do with productivity, offshoring and with potential procurement optimisation and economies of scale, so we believe the €75m is very doable," he said.
"In this type of merger, synergies are a component so that each company can continue to invest more in the future. Once we conclude the thinking and planning on synergies we then have an understanding of sources of synergy. The categories of synergies we've referred to are very typical when this size of a merger happens."
Historically, Tieto has not been afraid to make drastic reductions in its personnel. In 2012, it announced plans to cut 1,300 staff from the company to save €50m before 2014. The Finnish firm made another 250 layoffs in 2017 to achieve €20m in savings and this April announced another 700 positions were at risk in an effort to save €30m-€35m annually.
Has the Tieto-EVRY merger been years in the making?
Several industry sources based in Norway told CPI that they expected Tieto and EVRY to merge together several years ago, and expressed their surprise that it took so long.
While Tieto has been making layoffs across its entire business, EVRY has been making some big changes of its own. The Norwegian firm IPOed on the Oslo Stock Exchange in 2017 priced at NOK 31 per share.
Speaking to analysts, EVRY CEO Per Hove said it was easier to value each company since they're both publically listed.
But Tieto CEO Alkio said the firm is reacting to customer demand for digital consultancy projects to be carried out locally, creating a need for a pan-Nordic organisation.
"We have both felt for several years that this sector is one of the most competitive industries in the world. It has been the case, it is the case and it will be the case. The current period we live within is nothing unusual. There are many factors as to why the combination [of Tieto and EVRY] becomes so attractive. The whole scale and price competitiveness is just one factor, it is not the factor.
"We see more and more requirements and demand for deliveries and consulting which is done locally due to regulations and security. That gives great opportunities for a strong Nordic company," he said.
Magnus Hofshagen, VP corporate development at Norway-based SAM specialist Crayon, said that investments by vendors such as Microsoft and AWS in the Nordic region has prompted the region's IT services firms to scale up their business in order to compete.
"I expected them to merge a few years ago, and possibly even further than that. I think it's been a long time coming. The interesting part about this is: why now?" said Hoftshagen.
"These guys are large private cloud providers in principle. But the hyperscale vendors have been ramping up significantly. I think it makes sense; it's a game where scale matters, so it makes sense for them to combine forces to compete against the big ones such as Microsoft, AWS and so on.
"I think the Nordics in general has seen a big consolidation trend. It's not too long ago that we had the Comparex-SoftwareONE merger and we're also driving our own active M&A at Crayon. It's definitely part of a bigger trend… I think from Tieto's perspective it's long-term and it's more about getting scale. You can see the competition from the hyperscale public cloud vendors is something to consider."
Earlier this year, another global IT services firm, CGI, made a huge acquisition in the Nordics for software consultancy firm Acando for $459m, significantly boosting CGI's headcount across Sweden, Norway and Germany.
Meanwhile, in January, DXC Technology snapped up Microsoft 365 integrator EG, adding 570 staff to its Danish operations.
Will Tieto also outsource its infrastructure business to IBM?
The CEOs admitted that each firm's IT infrastructure strategies differ drastically. While Tieto offers mainframe services in-house, EVRY signed a $1bn outsourcing deal with IBM in 2015 which saw around 600 staff move over to the vendor to handle IT infrastructure contracts.
Alkio did not give an answer on whether Tieto's IT infrastructure business will go in the same direction once the two firm's combine, claiming that it will take a long time to figure out.
"On infrastructure, as both companies have driven their infrastructure paths differently, there's no short-cut from anything either company has done that can apply to the other company.
"There's potential given the magnitude of innovation in the tech landscape, that we can combine our scale in the future, but we'll have to do some architecting of the infrastructure environment jointly with some technology partners. Re-architecting the magnitude of these businesses will take a bit of time. I am very hopeful we will get more value but it will be much more long term. There is no shortcut."
IBM has meanwhile been investing heavily in its mainframe services business. It recently sought to acquire T-Systems' mainframe arm worth a reported €860m, but the deal was blocked by German anti-trust authorities.
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