LogicaCMG Buys Swedish IT Services Co.

In an effort to expand its reach, IT consultancy and outsourcing company LogicaCMG said on Monday that it plans to buy WM-data Nordic in a deal worth 882 million pounds (US$1.6 billion) in cash and shares.

WM-data, a Swedish IT services company, will help LogicaCMG target the Nordic region, the company said. LogicaCMG now mainly serves customers in the United Kingdom, Netherlands and France but has been looking to grow into additional regions. WM-data is strongest in Sweden but also has customers in Finland, Norway and Denmark, said analysts at research firm Ovum.

The combined company would become the second-largest listed IT services company in Europe by market capitalization and would rank in the top 20 companies globally in terms of IT services revenue, LogicaCMG said. Combined, the companies earned more than 3 billion pounds in revenue in 2005. Together, they have nearly 40,000 employees in 41 countries.

In addition to expanding its reach, LogicaCMG said the acquisition makes sense because customers increasingly want to do business with just a few suppliers that can offer a wide range of products and services. Also, LogicaCMG has been looking to boost the amount of its revenue that comes from outsourcing and WM-data, which generates 50 percent of its revenue from outsourcing contracts, can help it do that.

The acquisition is reminiscent of LogicaCMG’s purchase last year of Unilog, Ovum analysts Phil Codling and Douglas Hayward wrote in a comment about the deal. That acquisition was also of a regional player looking for a way to sell globally. WM-data has been investigating how it can deliver its services offshore, and LogicaCMG’s outsourcing bases in India and central Europe can help it do that, LogicaCMG said.

The analysts also noted, however, that investors appear to be reacting negatively to the announcement, with LogicaCMG shares dropping in value since the announcement. LogicaCMG said its offer represents a 25 percent premium on the value of WM-data.

LogicaCMG competes in Europe with other consulting and outsourcing powerhouses such as IBM, Accenture and Electronic Data Systems, but this acquisition shouldn’t significantly affect those competitors, said Hayward. The deal will likely put pressure on TietoEnator, a large competitor in the Nordic region, he said.

-Nancy Gohring, IDG News Service (Dublin Bureau)

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