Hewlett-Packard has made a cash offer of 162.9m pounds ($300m) to acquire support services company Synstar, in a move designed to expand HP’s European IT services business.
However, two of Synstar’s largest clients – Fujitsu Services and Computer Sciences Corp, refused to comment on whether they would be happy to continue subcontracting millions of dollars of support work to HP, which has emerged as a rival to them in the infrastructure services market.
Synstar renewed a 120m pounds ($221m), five-year contract with CSC in November 2002 to provide hardware maintenance and managed desktop services. The Bracknell-based company’s largest deal to date is a 200m-pound ($368m), seven-year deal with Fujitsu Services to provide logistics services, which it won in October 2003. Together, these deals account for an estimated 20% of Synstar’s annual revenue.
Gerry Sheridan, the head of HP’s technology solutions division told ComputerWire: CSC and Fujitsu Services remain customers of Synstar but we have a lot of work to do to conclude the deal. The integration of HP and Synstar will add more value to those clients and although CSC is a rival in some areas it is also a partner. We supply a lot of product through them to their outsourcing clients.
Steve Vaughan, chief executive at Synstar said: I’ve spoken to both clients [CSC and Fujitsu Services] about the prospect of the takeover, and I believe that we’ve got a stronger story to offer them if it goes ahead. I’ve not had any threats from them to cancel their deals if the takeover happens.
HP is offering 100 pence in cash for each Synstar share, which represents a premium of 28% over Synstar’s closing price of 78.25p on August 6 – the last business day prior to the deal’s announcement. The offer has been recommended by Synstar directors owning 0.3% of the company’s share capital, and also has the support of institutional investors that currently own a further 30.2%.
Synstar makes 90% of its revenue from its computer services division, which includes hardware maintenance, asset management and helpdesk services with remote systems intervention capabilities. It also provides standard desktop management services, data management services and repair services.
The attraction for HP in this part of the business is that Synstar can support multi-vendor hardware systems. Synstar has 600 engineers supporting more than 13,000 products from 1,000 different suppliers including StorageTek, Citrix and HP. The computer services division made an operating profit of 3m pounds before exceptional items of ($5.5m) in the six months to March 2004, on revenue that grew 1.1% to 93.3m pounds ($172m).
Synstar’s second business line is business continuity/disaster recovery services. This accounted for just 9% of the company’s revenue in the first half of 2004, with the unit reporting an operating profit before exceptional items of 1.4m pounds ($2.6m) on sales that fell 1.8% to 9.6m pounds ($17.7m). HP is the third largest player in the BC/DR sector behind IBM Global Services and SunGard Availability Services.
Synstar made 70% of its revenue of its half-year revenue in the UK and Ireland, with 11% coming from Germany and 18% from the rest of Europe. The company sold its loss-making French business in January 2004 to Nisa Conseil for 200,000 pounds ($368,000), but also incurred a 14.3m-pound ($26.3m) charge on the sale, of which 8.5m pounds ($15.6m) was in cash.
This restructuring had a negative impact in Synstar’s most recent financial results. In the first half of the year ended March 31, 2004, Synstar reported a net loss of 15.3m pounds ($28.2m) compared to a profit of 5.09m pounds ($9.4m) in 2003, on total revenue that fell 3.3% to 107.8m pounds ($198m). However, taking into account discontinued operations including the sale of its French business, revenue would have increased 1% to 102.8m pounds ($189m).
At the end of the period, the company’s cash position had declined to 12.8m pounds ($23.6m) from 19.2m pounds ($35.3m) in 2003. But looking forward, Synstar said it expected to achieve revenue growth from continuing operations of between 8% and 10% in the full year due largely to growth in managed services, and expects this growth rate to continue in 2005.
Sheridan at HP said that the company is keeping an open mind about further acquisitions to bolster its services business. If the Synstar deal gets the green light, it will represent a second big services takeover for HP this year, following its acquisition of the IT services unit of German industrial giant ThyssenKrupp in February for a reported 340m euros ($417m).