With yesterday’s announcement of the H-P/EDS business combination, are we about to embark on a significant round of consolidation among the heavyweights in the IT/BPO services marketplace? I don’t really believe so for a number of reasons.
First, it has been pretty well known, or suspected, for several years that H-P was in the market for an acquisition that would align their business model more closely with IBM’s (hardware - software - services) model. While I don’t suspect that H-P/EDS is a match made in heaven (since cutting A.T Kearney free in 2006, EDS has lacked the high end business consulting capabilities that IBM and Accenture dominate), it does provide both scale and scope and a strong global services footprint. I don’t suspect that any other service provider feels the same urgency to combine as H-P, at least in North America. EMEA may be more ripe for service provider M & A based on the strong desire by the Indian pure plays to establish a strong presence there.
Second, structuring a business combination that makes sense culturally, geographically, politically and synergistically is pretty difficult. Right now, the number of potential suitors across the globe that could reasonably pursue a deal of this magnitude is small and pursuing acquisitions across borders is made difficult when so many service providers have strong books of business with their sovereign government.
Third, all of the large global service providers are challenged in the current environment to reorient their existing business models and service portfolios to embrace emerging technologies and emerging delivery models. Combining two “old school” service providers may inhibit the adoption of skills/capabilities/assets necessary to compete with an emerging vanguard of niche/boutique providers and more agile Indian pure plays.
And, finally, the track record for M & A globally over the past two decades is pretty dismal. Within the IT/BPO service provider sector, large combinations such as H-P/EDS have delivered moderate success (IBM/PriceWaterhouseCoopers) or unqualified failure (Capgemini/Ernst & Young).
Consolidation is continuing apace at the lower levels of the market as the large providers acquire niche/boutique players with specialized skills, particularly in the BPO space. I just don’t think there will be a mad push for consolidation among the dozen or so large global providers.