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Economic growth and Dutch IT spending
 Last
year IT spending growth was more then double the percentage
of the economic growth of almost 3%. Total IT spending increase
was 7,6%. Especially the industrial companies did show considerable
growth. That is where we expect also this year considerable
spending increase in spite of decreasing spending at the
government and in the professional services sector. Software
and services were the most important growth areas in 2007
and will continue to increase at a slower rate in 2008.
Telecom- and Internet increased in 2007 with 1,4% and is
also expected to grow further in 2008 but in spite of the
rise of mobile communications at a lower rate then in 2007
if we look at the spending amounts. Competition and regulators
are pushing down local and international tariffs which has
its effect on the spending volume together with the decrease
in fixed line speech telephony (data services are doing
well). Also investments in data and network equipment are
expecting to continue to grow.
IT- and Telecom suppliers are operating in converging markets
which will create under pressure of fierce competition a
new market that will have strong dynamics in the years to
come. It will also promote further consolidation between
IT- and Telecom parties.
ICT-spending: growth figures 2007 and expectations 2008
in percentages:
|
2007 |
2008 |
| Total
ICT-spending in the Netherlands |
4,2
|
2,9 |
|
|
|
|
| Total
IT-sector |
7,6
|
5,1 |
Of which Hardware & Office technology
|
6,4
|
5,2 |
Of
which Software & Services
|
8,7
|
5 |
Of
which Software
|
9,5
|
5,9 |
Of
which Services
|
7,4
|
3,6 |
|
|
|
|
| Total
Telecom- & Internet sector |
1,4 |
|
Source: First figures ICT~Office/Heliview
Will the credit crunch influence the
Dutch ICT world?
 It
certainly will but when and how? At this moment the local
Dutch ICT world denies any influence and says no negatives
are visible or felt. It still profits from the strong economic
burst of the last quarters of 2007. What is certainly a
bottleneck is the shortage on the labour markets which drives
wage prices up and stimulates enormous turnover amongst
personnel. Lower spending in the financial world will have
its effect. The financial institutions are affected though
not that much apparently as reported in first instance.
The ICT service companies being a big part of the total
industry in Benelux itself are not that dependent on equity
and bank loans except debt financing. They learned to sustain
themselves without the help of the banks which were mostly
risk avoiding in granting loans to the sector. This goes
especially for the smaller and mid size companies.
What about the larger international companies? We don't
have that many any more but companies like Unit4Agresso
(strong in the UK) and Exact (acquisitions in the US) must
feel some effect. Our international ICT service companies
are mostly focused on Europe where the credit crunch effect
is felt in a lesser way.
Certain highly leveraged bigger deals that were planned
with help of private equity (incl. extended bank loans)
are postponed or cancelled.
So, in view of the known facts now and if the economic
situation recovers in the 2nd half of this year we don't
believe the Dutch ICT world will suffer much.
Temp organizations expanding into IT
staffing and BPO
 Staffing
agencies are normally the economic weather indicators for
our economy. They all published good results and a positive
outlook. All the larger ones such as Randstad, Vedior and
USG People want to focus on white collar niche markets with
higher skills and educational needs. At the same time they
are also part of a large scale European consolidation. Randstad
is taking over Vedior and is going to be number 3 in the
world. Adecco is already big but still acquisitive in specialized
areas. Most of them have specialized divisions for IT staffing
like Randstad/ Yacht and Adecco/ Ajilon. They target ICT
service companies in order to offer a one stop shopping
point. What we also see are the first alliances in the field
of BPO especially HR/ Payrolling such as Randstad with Philips
regarding CIAN.
The Geo market - the rise of TOMTOM
One of the miracles of the last years is the rise of TOM
TOM which opened our eyes for the multiple application options
in our daily life of geographical information systems. TOM
TOM has developed to a major player at the stock exchange
with very interesting daily volumes.
It is planning to take over Tele Atlas for $5bn outbidding
Garmin as is Nokia trying to take over Navteq for $ 8bn.
The Geo market is opening new opportunities for start ups
together with the growing demand for innovative new user
capabilities on mobile platforms.
Mid size ERP landscape changing?
 While
until 2006 Exact Software and Unit4Agresso dominated this
market for long beginning 2007 we were all surprised by
the take over of Account View by Visma. It is already the
second acquisition since the company was acquired by British
private equity fund HgCapital who wants to help the company
in getting Pan European presence. The only local player
left with ambitions and a certain substance is Afas. Another
active Scandinavian player in the Dutch market is Mamuth.
Remarkable was also the merger between Quirius and Watermark
thus creating one big leading M/S business Apps party in
the Netherlands and at the same time one of the scarce players
in that field with material international exposure. Remarkable
are also several emerging parties in the crowded area such
as AFAS ..........
Ofcourse there will be also the big boys like SAP and Oracle
that want their share in the mid size markets too.
Anyway there will be more competition and some more consolidation
in the future that is for sure!
Highlights per sector
ICT services
 Centric;
5500 people in IT in the meantime including engineering
and financial services 8400 people! The company has done
a lot of acquisitions the recent last years. It has broadened
its IT business lines into Engineering and Finance &
Legal using the Centric listed vehicle while the IT interests
are still private and the most profitable part of the empire
of mr. Gerard Sanderink. Most recently inOne a German Oracle
JD Edwards house was acquired. The beginning of a European
expansion strategy is taking off.
KPN; has been strengthened through the acquisitions of
several hosting - ISP's including Tiscali Netherlands (still
to be approved by Dutch competition authorities!) plus Getronics
in 2007. The company is busy to process the take over of
Getronics. The software application division (the old Pink
Roccade part) is going to be divested. It is the M&A
project of the year. All strategic and financial parties
and their advisors are trying to influence the process with
all kinds of means, arguments and reasoning. In the end
it is all about the highest bidder we predict.
 Ordina;
still independent, same size as Centric IT, but without
international growth strategy (only Benelux). They are doing
well in terms of KPI's but their personnel churn is alarming
(> 15%) and they have difficulties to make a profit in
the BPO area. In outsourcing and BPO they expect to grow
in the future however. They are also partnering with a US-Indian
company for this reason, Cognizant who makes a lot of money
in outsourcing IT operations in India. Ordina is a firm
candidate for acquiring the PinkRoccade part from KPN/ Getronics
and is trying to get bigger in Belgium. If they don't succeed
in both projects they must prepare for a take over because
they are an ideal buy target themselves for parties who
want a solid footprint in the Benelux.
ATOS; performed better in 2007 but is still in the process
of improving operational margins and repayment of debt.
They are a target for Private Equity for a longer period
already (a € 4B offer) but no deal until now. There
were also rumours about a merge with a larger European party
so now and then.
 LogicaCMG;
a disastrous year for the UK, all the other key countries
under which the Netherlands are doing well, acquisitions
in Scandinavia and France have been integrated well, old
generation management left, new management has taken possession
that will set a new pace we predict. There are counties
where there presence is too small like Germany. The presence
in the Dutch market is sizable and reputable but in specific
areas.
Cap Gemini; is doing well again and has processed the impact
and loss of the integration of E&Y. It has acquired
Kanbay for $1,25B, an Indian offshore company with a US
listing. Cap's presence and influence in the Dutch market
is substantial. They were not in an acquisitive mode in
Benelux but are also bidding on the Pink Roccade part of
KPN/ Getronics.
T.Systems has acquired an enormous outsourcing contract
from Shell together with ATT and EDS. It will stimulate
them to expand their modest presence in the Netherlands
until now.
Revival of small caps ICT funds:
- Simac; is doing better, is about to further improve
profitability and focus on specific markets, is very cautiously
acquisitive
- Ctac; has done very well last 3 years, has done small
acquisitions in Belgium. Is open for acquisitions in Germany.
- Qurius (ex Magnus); has acquired Watermark with the
help of Parcom and is trying to fill gaps in its international
presence and product/ service offering in Europe by additional
acquisitions.
- DPA Flex; has recovered from some bad experiences and
tries to find the path to growth again improving profitability
at the same time. The founder announced his formal departure
of the company in a couple of month selling off his shares
at the same time. Management has been renewed. The market
is expecting the company to be sold or merge.
- DNC; has done well until now, was almost sold to DPA
but rejected, next try for a reverse take over?
- ICT Automatisering; is cautiously acquisitive especially
in Germany at the moment trying to cover the whole country
with their services in the field of industrial automation.
Private players like: Interaccess, IT Staffing, LinkiT,
Ceasar Group, etc. are all buy targets for strategic trade
sales or in some cases candidates for Private Equity or
IPO's.
 ICE
Enterprise Solutions - one of the better SAP consultants,
service providers has been sold to an Indian party Genpact.
A remarkable deal from which we will see more in the future
we predict!
New IPO's : TMC on Alternext Amsterdam and Porthus on Alternext
in Brussels are doing well. Let´s see what Alternext
brings us in 2008. Under normal conditions, if the first
ones are doing well more is to follow.
The main Belgian players:
Arinso was sold to Nothgate and Northgate itself was sold
to KKR! So another Belgian star company disappeared. What
we read in the news media is key people leaving the company.
Dolmen was finally sold this year to Real Software which
is busy to create its second life and is growing. That could
create another interesting larger Belgian ICT project.
Ubizen has been acquired by CyberTrust, which on its turn
has been bought by Verizon. Full stop.
Econocom; we are waiting for the revival of Econocom that
has a new strategy and a new concept for ICT outsourcing.
Telindus has been integrated into Belgacom and is looking
for options to grow outside Belgium in telecom and IT services.
They took over ISIT a Dutch storage specialist in april
2007.
Private ICT service providers of substance are only few,
Cronos is doing well and is growing to its maximum size
for the Belgian market looking for expansion in the Netherlands.
 Remarkable
was the transaction between Satyam (India) and S&V Management
Consultants for 35 M US dollars. Satyam paying more then
2 times sales. Another example of Asian buying hunger within
Benelux.
Our prediction is that consolidation has not ended yet,
not only big ones buying smaller fish, but that medium sized
companies can grow bigger unexpectedly!
ICT software
 Unit4Agresso;
has got rid of its Noxs division (to Westcon) 2 years ago,
has taken over CODA for a stiff price (approx. € 200M).
Other acquisition projects are in process too they say.
Their aim is within short to reach the € 500M turnover
border line otherwise they could be a target for others
that are looking to further strengthen their market position.
Since the founder is still at the helm we can expect news
from them in 2008 we predict.
Exact Software; is performing as expected, paying nice
dividends, and a good looking Canadian acquisition in 2007.Though
the CEO announced a further acquisition streak the analysts
are thinking what is going to be really agenda? The company
is clearly a target for a take over. Unclear is what the
wishes of the founders are who are still own important share
holdings but are not running the company. Most recently
discussions with two Private Equity parties were stopped
for the time being.
 Jan
Baan; has invested in Cordys without return until now, he
is looking for the right alliances. In the meantime he will
be able to sell his interests in WebEx we can read in the
press for $ 283M so he can go on with his entrepreneurial
activities in the software world.
We were surprised by the acquisition of IBM of Consul,
a Dutch company specialized in risk management software.
McAfee acquired mobile encryption provider SafeBoot NV
(Netherlands).
There are a limited number of local software companies
left in Benelux, mostly in specialized or niche areas which
are not that interesting for the international mainstream
players or just not well known enough. Software as a Service
will gain terrain we see and will conquer a certain part
of the market.
Media, Internet, Games, Gambling
 Endemol
has been delisted and acquired by John de Mol (Edam Acquisitions),
Deltaloyd Investments (Cyrte) and Silivio Berlusconi (Mediaset).
The former CEO has been installed again.
Channel (10); the TV channel of John de Mol has been acquired
by RTL. The Dutch soccer association is planning its own
paid soccer channel. Guess who is going to be their partner?
Telegraaf Concern; it wants to buy a bigger stake in the
TV and internet content world, protecting its declining
income from traditional news papers.
Full service internet organizations; including business
consultancy, competence to chart business processes and
create e-business portals are entering the world of the
traditional Marketing Communications Agencies. There is
also a growing demand for portable web based applications
that are also the domain of the full service internet bureaus.
Social networking is hype in the Netherlands too. Van den
Ende & Deitmers a media investment company with again
Mr. Joop van den Ende behind it, is taking 30% of leading
Dutch social networking company Hyves. They already own
a considerable stake in Advance, a full service internet
agency specialized in concept development for media companies
and digital production services.
There is movement in the TV games, sport games, betting
and gambling world. A break through is be expected as soon
as the Dutch state monopoly on gambling is broken. The first
intends have failed until now.
The best example of success in this area has been 2waytraffic
that received an offer from Sony to get delisted at AIM's
for euro 150M.
Telecom, cable
 Cable
world; UPC has competition now when Casema merged together
with Delta cable supported by Private Equity. New name is
Ziggo. Of course this will mean another serious contender
in the field of internet access and Telephony too for KPN
and the other operators.
Versatel, Tele2; finally concluded on their deal in spite
of the resistance of Private Equity. It has to be seen now
if Tele 2 can really be an important force in the Dutch
market and an alternative for KPN. The losses in Versatel
over last year are staggering.
Vodafone; acquired TNF in the Netherlands, in that way
they can offer customers fixed line access too.
France Telecom; It divested Orange in the Netherlands to
Deutsche Telecom (T.mobile).
Belgacom; it acquired Scarlet this year and gets a footprint
in the Netherlands in the retail market. They are experiencing
problems with competition authorities in Belgium. There
is more to come in the business segment we predict.
Since telecom operators are under pressure and have to
act we predict a lot activity and deals in this market.
 There
are several virtual operators left in the Netherlands that
are expected to consolidate into larger units at the same
time being migrated to VoiP and can be sold afterwards to
bigger competitors of KPN.
Fiber to the home and fiber to the office networks are
also high on the wish lists of the larger telecom operators
with presence in the Benelux.
Our analysis
 The
Benelux area is interesting for investors in technology,
media & telecom because the economy is not so dependent
on traditional heavy industry but more focussed on trade,
transport and services. Orientation is international, labour
force is well skilled and flexible. There are relatively
many large multi national companies that are interesting
targets. Same goes for the central and local government
which is used spending a lot on ICT. The TMT industry is
mature and used to work with the standards of high demanding
clients. Payment moral is high compared to other countries
in Europe. Adaptation to new conditions in the TMT market
is taking place, which will insure a favourable price/cost
relationship of professional services in the near future
again. The economy is in good shape at the moment but to
certain extent related to what happens in Germany but much
more flexible and service oriented!
There are definitively signs that business is continuing
to grow in spite of a slowing economy and the difficult
general circumstances in the financial world:
1) Software vendors and service providers stand to benefit
from the continued growth in large and medium sized enterprise
spending. Businesses in the Benelux are increasingly confident
that an investment in ICT will pay off handsomely in operational
efficiency.
2) The national IT industry is in good shape, financially
healthy and estimates a 5 pc growth this year. There will
be sufficient space for further development of medium sized
and smaller companies in niches with large accounts or more
broadly with the SMB segment.
3) Enterprise-focused IT companies will continue to pick
up on developing areas of the market in a bid to generate
sales, and this will be a major route for them towards stabilising
their sales growth in the newly maturing market.
4) Consolidation will accelerate; what we see is an increased
flow of private companies that are for sale and a larger
circle of potential local and international buyers.
 In
order to create value in the future the Benelux ICT entrepreneurs
must look often to partnerships in other European regions.
Finding the right partners is a job, which has to be tuned
very much to the needs of the selling party and the buyer.
An expert party that knows both sides and the ICT market
situation, could create an optimal situation for a smooth
deal that makes both parties happy: we know one!
Team CIC
´A real leader faces the music, even when he doesn't
like the tune´
Anon
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