Atos' cloud and Big Data ambition is no Bull, but will need strategic focus to execute

Profile picture for user slauchlan By Stuart Lauchlan August 3, 2014
Summary:
A Frenchman who's not taking the whole of August off on vacation? That's how important Atos planned takeover of Bull is to the services giant.

Thierry-Breton-Chairman-CEO-Atos
Thierry Breton

If anyone had any doubts about how important Bull is to the future strategic growth of French outsourcing giant Atos, then they need wonder no more. It’s so important that according to CEO Thierry Breton:

We plan not to take August vacation at least after August 11!

Zut alors! That's one hell of a commitment from a Frenchman!

Why August 11? That’s when Atos will get the result of Bull shareholder voting at the end of the required offer period under French stock market regulations. A simple 50% in favor is needed to secure the transaction after which Breton says it will be straight to work.

It seems to be being regarded as a formality on the Atos side, with Breton affirming:

We are very confident that we will reach this 50% threshold given the attractive financial terms of the offer and thanks to the relation with several allowed Bull shareholders, most of them committed to bring their shares.

Looking at Bull’s second quarter results last week, it does seem likely that the firm shareholders will be in search of some salvation.

The firm turned in a loss of EUR60.4 million, compared to a loss of EUR5.5 million in the comparable period last year, while revenues were EUR585.4 million, down 2.6% at constant exchange rates and down 3.4% at current exchange rates.

Bull cited weak investment in traditional IT infrastructure as impacting the bottom line along with substantial restructuring costs related to its One Bull initiative.

Launched in January as a 3 year plan, One Bull has three action areas: a refocusing of business activities around cloud computing and Big Data, efficiency improvements and an overhaul of enterprise wide agreements.

But on 26 May, Atos presented what might well be regarded as a quicker turnaround option in the form of a proposed takeover, a proposal which the Bull board unanimously accepted. It’s likely to cost Atos EUR620 million.

Mind you, Atos didn’t have much better news than Bull for the stock market itself, with first half net profit down 34% year on year, from EUR116 million to EUR76 million, while revenues fell to EUR4.18 billion from EUR4.29 billion reported a year earlier.

Mutually beneficial?

So both firms are in need of a helping hand to greater or lesser degree, with Atos in particular focusing on Bull’s skills and track record in cloud computing and Big Data.

Bull’s data management business - which covers Big Data and cloud - rose 8.0% to EUR383.2 million, with private cloud services turning in double-digit growth.

The firm has been granted permission by the French Ministry for Health and Social Affairs to operate as a Personal Health Data Hosting Provider for its Le Cloud by Bull - Health Edition offering.


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On the Big Data front, Atos has a joint venture in place with Siemens, but to date this has enjoyed limited success. On the other hand, Bull’s investment in High Performance Computing has supported its own Big Data ambitions to greater effect.

Breton argues:

This acquisition will strengthen our position along some of the fastest growing segment in IT services, namely big data, cyber security and of course cloud. On top of those, the integration of build Atos will have virtuous effect also on the system integration and the manager services business of our company.

Bull will bring critical and complementary capabilities in big data which combine with Atos solutions would create a unique offering in this high-growth segment.

Similarly, the combination will enhance Atos’ number one position in cloud services, anchor its global leadership in managed services and system integration.

And needless to say that in cyber security, we will have a very strong offering which would be probably one of the leading one in Europe.

There are clear opportunities for both companies, says Elitsa Bakalova, analyst with Technology Business Research:

The addition of Bull’s IaaS, PaaS and SaaS capabilities will enhance the [Atos] Canopy cloud services portfolio and ramp up its growth with hybrid cloud, a core focus for Atos. With cloud revenue already above Atos’ expectations prior to the acquisition, TBR expects Atos will achieve €700 million in cloud revenue in the targeted 2016 time frame. Atos’ ability to keep clients’ data under European sovereignty helps the company effectively compete against non-European rivals.

But Bakalova warns that the same degree of success around Big Data might be harder to achieve:

Folding Bull into Atos’ SI and data analysis offerings provides Atos an opportunity to augment the €200 million combined big data pro-forma revenue base in 2013, according to Atos’ estimates. While Atos is advancing in Big Data and analytics, the company is less recognized in the segment and will face tough competition from other IT services providers. For example, IBM and Accenture expanded their big data and analytics capabilities over the past several years, but Atos has less depth of offerings in the segment compared to either company.

Assuming the deal closes, the combined 85,000 strong entity will generate €10 billion of revenue based on 2013 performance levels, of which $8.8 billion will come from IT services. The joint organization will begin formal operations in January next year.

My take

I’ve been in this game now for long enough to remember when all the European governments had their own ‘national champion’ in IT which went straight to the front of the queue when it came to public sector business.

In the UK, we had ICL - may it rest in peace! - while France had Bull, named after Norwegian engineer Fredrik Rosing Bull, who invented a punch-card device in 1919.

In common with the other national champions, the French government eventually sold off chunks of the business to private investors, although unlike ICL in the UK, Bull continued to get government bailouts to the tune of more than a billion Euros between 2001 and 2005.

For Breton, I suspect this is more than just another business deal. Back in 1993, he was CEO of Bull as it sank into problems. Breton quit to take up a role as French finance minister, before returning to the tech industry as CEO at Atos in 2008. This is therefore his second attempt to revive the fortunes of his former firm.

Unlike Atos’ recent attempt to acquire rival services firm Steria, this deal looks good to go - and one that makes mutually beneficial sense for two giants of the French IT landscape. That said, there will be a lot of work to be done to optimise the synergies between them.

Bon chance!