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French IT services giant Atos has acquired offshore IT services company Syntel for $3.4bn (£2.6bn), which will increase its Indian delivery capabilities.
The takeover gives Atos 23,000 new staff as well as significant delivery capabilities in India, with about 18,000 members of Syntel’s staff based there. It also lands them three major customer accounts, with American Express, State Street and Fedex accounting for a large chunk of Syntel’s business.
Thierry Breton, CEO at Atos, said the acquisition will extend Atos’ digital global services offering. “In particular, the highly complementary portfolio, customer base and geographic footprint of the combination between Atos and Syntel will significantly enhance our presence in North America and accelerate the digital transformation of Atos’s customers worldwide,” he said.
Syntel made sales worth $924m in 2017, with 89% in North America.
With companies like Tata Consultancy Services reporting double-digit sales increases, European IT service providers, which are growing much slower, are looking at gaining customers through acquisition.
Peter Schumacher, CEO at management consultancy the Value Leadership Group, said Atos has been in discussions to acquire Syntel since 2014. He questioned where growth would come from.
“This is a risky acquisition because Syntel is heavily reliant on three main customers, American Express, State Street and Fedex, where 45% of revenues come from,” he said. “These accounts cannot be grown any further and other US accounts will be difficult to grow.
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“This case reflects a trend towards increasing consolidation in the global IT services sector,” said Schumacher.
“Second, French services firms are the most ambitious in Europe, and taking expensive acquisitive steps to defend their business, expand in India and leverage the global delivery model to achieve higher profitability, stronger growth and geographic diversification.”
Schumacher said there will be integration challenges in India, where both companies operate very differently. "Atos has not talked about the integration challenges in India where both companies operate very differently. The Atos cost-center model will face a largely customer-managed model by Syntel. Bringing these two very different approaches together will require some smart thinking."