Services Safari

Whittman Hart Sale

                 End of an Era? End of the WhittmanHart Story?

Today, Rolta TUSC acquired WhittmanHart Consulting. The deal effectively splits Whittman into two with WhittmanHart Consulting (WHC) being sold and WhittmanHart Interactive remaining as a surviving practice. While this sale does not close out the WhittmanHart story, it does leave the firm as a shadow of its former self. At its peak, the company was one of the largest systems integrators in the Midwest. The firm experienced explosive growth during the dot.com boom and contracted just as quickly during the years after the bust. The company, at times known as MarchFirst, has been rebuilding in recent years.

WHC has skills in the BI space, particularly with Oracle's Hyperion products. The deal should be accretive to TUSC give the potential synergies between the WHC Midwest operations and those of TUSC's in India and elsewhere. For information, click on WHC. 

Psst - Hey Buddy! Wanna Buy a Consultancy Cheap?

                              Penny Stock Status for BE?

I was reading today's Wachovia Weekly (June 20, 2008) issue and it stated that BearingPoint (BE) shares traded at $1.05/share on Wednesday and approximately $0.72/share today. That means that the stock can't be traded on the main NYSE floor and is instead traded on the NYSE Arca exchange.

Worse, Morningstar may revise its fair value estimate for the company and drop their prognosis for a successful turnaround as part of the valuation. 

If my math is right, then the company has a market cap of only $157 million on sales of approximately $3.4 billion. Wall Street is not pleased with the prospects or earnings (or lack thereof) from this firm.

I think it is time for some aggressive, growth oriented systems integrator to step in and grab a bargain. $3.4 billion in revenue is not insignificant and if it can be acquired for a pittance, it might make for a quick way to gain headcount, revenues and clients.

Usually, I'm not a fan of buying/selling consultancies as these are often expensive and the key asset of the firm (its people) are fleet of foot and tend to leave en masse once word of an acquisition surfaces. In the BE case, I would suspect the staff would appreciate and welcome new owners, a new company name and new lease on life.

Who would buy BE? I'd suggest the following: a major offshore services provider that needs additional local (i.e., US and European) personnel in local clients. I say the major offshore firms like Infosys, Cognizant and Wipro could be players in this.

I'd also expect a private equity group could also get involved. Remember Carlyle Group just led the deal to grab Booz Allen Hamilton's government consulting group. BE has a lot of government business in its portfolio.    

I know some really great people at that firm and I'd hate to see it slowly implode. I do believe the assets could serve clients but an infusion of new talent, new momentum and new purpose would go a long way to righting this entity.

Let's see what develops.

NetSuite and OpenAir Marriage

                    A Deal That Re-Defines the PSA Space

Today, NetSuite announced that it is acquiring OpenAir, a professional services automation (PSA) software company based in Boston, Massachusetts.  NetSuite will pay approximately $26 million in cash for OpenAir.

Why We Like This Deal

We believe this deal will have a significant impact on the PSA software market space.  Why?  For many years now, the PSA marketplace has maintained a nominal sense of stability wherein PSA vendors quietly competed with one another.  And, although large ERP vendors purchased some earlier PSA solutions, they have failed to take full advantage of same in the marketplace.  In fact, we would argue that only Primavera has done a reasonable job of integrating companies (e.g., Evolve) into its product suite. In fact, recent merger and acquisition activity in the space has mostly been between PSA and PPM (project portfolio management) vendors.

In our discussions with SMB top executives, we have consistently heard complaints about the high cost of integrating clusters of application functionality with other components that companies have purchased/licensed.  For example, users are distraught about the cost of integrating back-office solutions to front-office solutions to vertical specific solutions (e.g., PSA or manufacturing).  Specifically, users have indicated that the cost of integrating these collections of functionality together is often a form factor greater than the license cost of a specific application suite.

By doing this deal, OpenAir now brings to the market an integrated financial back-office solution with its own service industry product line.  Both will be offered in an on-demand (i.e., SaaS) basis. Service firms will, in time, benefit from the tight integration to come between these two product offerings.  In a conversation this morning we had with Zach Nelson, CEO of NetSuite and Morris Panner, CEO of OpenAir, we learned that the integration will take place in three steps.  Step one will be to integrate the two companies and their organizations.  Step two will tie the existing product lines from both firms together.  Step three will see the rebuilding of the OpenAir solution under the NetSuite toolset.

While NetSuite had its own service solution, OpenAir's is a more robust product and will undoubtedly assume the service industry leadership role within NetSuite.  We believe this transaction will put considerable pressure on other PSA vendors such as QuickArrow and will likely result in a wave of other acquisitions in the PSA sector.

The deal brings other opportunities for the combined company.  The acquisition of OpenAir brings a significant East Coast presence to NetSuite.  OpenAir brings 300 service based customers into the NetSuite family.  Virtually all of these customers utilize back-office applications that are prime replacement candidates for NetSuite.  A typical OpenAir customer would be using solutions such as Microsoft Dynamics, Great Plains, Sage, AccPac or other financial accounting software.  Every OpenAir customer is an upsell opportunity for NetSuite.  Likewise, NetSuite has over 5000 customers and considerable experience in the services sector.  However, what we really like about NetSuite is its product development architecture: NS-BOS. This platform, also known as the NetSuite business operating system, permits two key things:

• the rapid development of vertically specific applications in a well-designed multitenant SaaS architecture
• the seamless integration of these applications with NetSuite's core front and back office products

This deal should be accretive in short order if both sales forces are unleashed to sell the NetSuite front office solution, the NetSuite back office solution and the OpenAir PSA solution.

This entry cross-posted to the Software Safari blog.

What's in a Name?

                Booz Allen Hamilton and Booz & Company

Now that the Carlyle Group's bid for the government contracting piece of Booz Allen Hamilton is going to occur, the new name is being announcement. The government contracting portion will retain the Booz Allen Hamilton name while the remaining corporate consulting practice will assume the name Booz & Company. For more, read this announcement.

Naming a consultancy is a very personable thing to the people within the firm but not so for most anyone else. It's one of the reasons old firms retain vestiges of their original names. Booz Allen Hamilton is 94 years old and both of its entities are keeping some or all of the old name. Andersen Consulting and Arthur Andersen are another example of this trend.

Consulting names can be literal (e.g., Software Installers Consulting Ltd.), aspirational (e.g., Big Results Finance Consultants), founder based (e.g., Dewey Cheatum and Howe) or an empty vessel. The latter is a madeup name that the company hopes to influence on its own. For example, what did Accenture or MarchFirst mean before these firms used them? What's interesting about empty vessels is that they are flexible, morph and adjust to the changing business offerings of a consultancy. Literal names are often straightjackets to consultants.

Booz & Company took an easy, safe approach to its name. I hope they didn't pay anyone anything for it as it is so obvious. But, it should have lasting power. Will the surviving company last as well? Time will tell...

EDS, HP, Booz, Carlyle - Additional Perspectives

                        Handicapping Recent Acquisitions

I wrote about the HP/EDS deal in the Software Safari blog last week. But Frank Hayes over at ComputerWorld has a pretty jarring post about the deal. He opines that:

• a sizeable number of EDS personnel will be let go. HP may accelerate EDS' plans to move more jobs offshore. The merged firm may have more services personnel than it needs. Hayes wonders whether 20, 40 or 60 thousand employees could be cut loose.
• service levels for EDS customers could fluctuate during and after the merger. HP may automate data centers more to reduce operating costs. They may also ship more data center management activities to offshore centers/workers.
• HP may cull the more demanding customers from its ranks.

It's an interesting read, particularly if you're an HP or EDS employee or customer. It's even interesting if you're a competitor of the merged firm.

Another good read is Phil Fersht's piece on the EDS deal. His chief observation is that it might stimulate a number of BPO deals to get done.

The Booz Allen Hamilton/Carlyle Group deal is getting some attention from Washington D.C. types. In a New York Times piece, the $2.5 billion deal is resurrecting feelings that Carlyle Group is using its political connections, etc. again to grab a significant amount of government contracts. The Booz deal makes it easier for them to complete the work as the part of Booz they bought was a such a top notch brand in government consulting.

What's not getting much discussion is the remainder of the Booz business: the commercial consulting practice. This firm, which may not get to use the Booz name, will be a shadow of its former self. It will have to compete with far larger competitors like McKinsey and they won't make it easy for them either. If I could bet on this, I bet that the remaining practice will also be acquired, soon, by another competitor but not until after the remainder loses a lot of good people.

I'd recommend BearingPoint (BE) go after the remaining fragment of the Booz business and do it now before people voluntarily defect in any quantity. BE could use the strategy talent and access to additional clients and client executives. Moreover, the addition of this strategy practice could be quite helpful to both organizations. Interestingly, BE has a pretty large government practice but their commerical sector could benefit from more help.

I don't see most Indian based firms interested in the commercial side of Booz. Contrary to their claims of wanting to build out more high-end services, the Booz commercial business may not fit their business model. It should but I doubt any of these firms will give it a serious look-see.

At the right price, I could see Accenture (ACN) go after the commercial piece of Booz but it would have to be at a really low price and might require the acquisition of the Booz brand. In Gartner parlance, I'd only give that one a 0.02 probability.   

Booz Breakup

                                              Is Booz Getting Split?

                            In what must be the worst kept secret around in professional services, Booz Allen Hamilton is rumored to be selling off its government consulting business to the Carlyle Group. In this story, first-rate publications like the New York Times, Washington Post and others are reporting the impending sale.

In reviewing these reports, it appears that Booz may have:

• to sell its brand name along with the government business
• most of its workforce tied up in the government business
• its steadiest earnings from the government business
• more top executives in its commercial business than its government business

There seem to be a lot of people reporting that:

• the commercial sector accounts for as little as 20% of the firm's $4billion in annual revenue
• the commerical sector generates greater margins (although some persons have vigorously disputed this assertion).
• the company is facing an internal schism between the executives in the two business units

When the top executives within a service cannot agree on a uniform strategy or direction all heck breaks out. I know this well. I am intimately familiar with a situation where:

• partners in one business unit resented the higher incomes that partners in the other business unit made
• those concerned partners saw their ability to control the firm (and their destiny) slipping away as the other business unit continued to grow at faster clip. The smaller but growing business unit would someday have more partners and the balance of power would permanently shift away from the other business unit
• the concerned partners wanted to sell the more prosperous business unit while they still could and recognize a sizeable profit for themselves

For a time, the two partner groups created a solution that created an earnings pool that would transfer some percentage of 'excess' profits to the partners in the lower earning business unit. The two business units were then legally separated with only a miniscule connection binding the firm's earnings together.

That deal eventually unravelled as the lower earning (but well subsidized) business unit used its transferred earnings to create a competitive business to its better run and more profitable sibling. Obviously, this created substantial friction and distrust. Eventually, one Business Unit's leaders had enough and filed for a divorce. Actually, they requested an arbitrator to finish the severing of the two organizations and terminate the excess earnings transfer.

In the Booz scenario, I'd recommend:

• Bring in an outsider, a tough independent person, to arbitrate the issues between the two factions. If Booz really has a 80/20 split between government and commercial business, then the smaller firm may suffer mightily post-split. Booz needs an outsider as no internal executive can play the role of King Solomon or the Great Uniter without any taint of bias to one Business Unit or another.
• When one group of partners think they are going to receive a windfall from selling off one of the firm's business units, bring in a group of Wall Street bankers to explain to them how this really works. Rarely are the benefits as big as the dollar signs in these partners eyes.
• Make sure everyone understands that the both business units must be made whole so that each can operate independently.
• Understand which professional staff and intellectual property will go with each entity post-sale. A lot of career-minded, advancement oriented professionals will not want to work in the business unit you want them to follow. Moreover, don't be surprised when some of them only want to work with the Booz Allen Hamilton branded business unit whichever that one is.

Yesterday, I received my subscription renewal form for Strategy+Business, the excellent magazine produced by Booz. I think I'll wait on renewing until I see how this situation unfolds.

M&A in the Services Sector

           Government Sector Deal Volume - Whole Lotta Dealin' Going On

Check out these two links:

http://www.washingtontechnology.com/print/23_03/32312-1.html

http://www.washingtontechnology.com/mergers_acquisitions/2007/

The first is a good article discussing the consolidation occurring in the government systems integration sector. The second is a list of deals that transpired in 2007. It's a good list and one that helps put the services M&A activity in perspective.

There's something structural occurring in this space and it appears that consolidation is being undertaken to:

• create additional scale
• create marketing and operational synergies
• broaden expertise in more service areas

There's something else happening, too. Government services contractors are now becoming more distinct from their private sector counterparts. In fact, it's getting rarer to find firms that successfully sell and service both spaces or serve both spaces well. Why? Well, the selling effort has always been different between public and private sectors. But now, service firms need distinct and focused offerings just for governmental entities (think of Homeland Security - It has very unique needs, needs a lot of help and it didn't even exist a few years ago). Moreover, given the high development costs of some offerings, government service providers are realizing that they must have scale to keep costs at their lowest possible levels so as to continue to extend their win rate.