Volkswagen is poised to become the latest major automotive manufacturer to spin out its internal IT services division, which trades as Gedas AG.
Investment bank Lazard has been appointed by Volkswagen to sell Gedas through an auction, according to a report in French business daily Les Echos. Volkswagen spokesman Jorgen Kornmann refused to comment, other than saying: The Board of management is reviewing all options, ranging from strategic expansion to an initial public offering or sale.
A large number of services vendors are expected to be interested, including IBM Global Services, Computer Sciences Corp and EDS, which have all stated a desire to build up their delivery capabilities in Germany. One investment banker told Computer Business Review that Gedas could fetch between $400 million and $500 million.
Berlin-based Gedas has round 5,000 employees and increased pre-tax profit 25% to E13.7 million ($16.3 million) on revenue that fell 1.6% to E567 million ($677 million) in full-year 2004. Some 29% of its sales were in its native German market, with Spain the second largest contributor with a 25% share.
Volkswagen is Gedas’ largest client, accounting for approximately two-thirds of total revenue, and Gedas suffered last year as a result of its parent organization’s cost reduction program, which saw it cut investment in new IT systems. External clients include Commerzbank, Deutsche Bahn and Johnson Controls.
Gedas provides consulting, systems integration and outsourcing services, with strengths in installing and managing SAP ERP applications, as well as PLM and CAD systems. The company also develops proprietary applications for car dealers, with an installed base of more than 4,000.
Automobile manufacturers have historically been aggressive users of outsourcing, handing over many elements of their supply chains to third-party firms so that they can focus on core assembly, R&D and marketing functions. However, automakers have taken differing views as to whether to retain their main IT functions in-house or outsource them to a specialist supplier.
General Motors acquired EDS to boost its internal IT capabilities during the mid-1980s, before spinning it out as a separate company in 1996. Although EDS remains a key IT services supplier to GM, its role is likely to be diminished when the manufacturer overhauls its IT procurement processes next year.
VW will become the fifth of the world’s 10 largest automobile manufacturers to spin out the majority of its IT functions as part of an outsourcing deal.
Germany’s largest automaker, DaimlerChrysler, sold its internal IT services operation debis Systemhaus to Deutsche Telekom for $4.1 billion in 2001, and IBM Global Services has now taken outright control of Italian giant Fiat’s IT operation as part of a $6 billion outsourcing deal announced in 2001.
Earlier this year, French automaker Renault announced three major IT outsourcing contracts worth a combined $790 million with Hewlett-Packard, Computer Sciences Corp and Atos Origin.
However, Ford, Toyota, Peugeot and Honda all retain significant internal IT resources, and BMW has recently expanded its IT services arm Softlab through the acquisition of Entory, the IT services arm of Deutsche Boerse.