July 26, 2022
By Marc Irisson, Partner Translink Corporate Finance in France, Translink International Board Member & Head of TMT Group
Since 2021, Atos – one of the world’s largest TMT (Technology, Media, and Telecom) companies – has lost three-quarters of its stock market value, after ten years of fast-paced acquisitions. The global group is now following in IBM’s footsteps and splitting into two listed entities: Atos, which will prioritise the ‘old,’ such as managed infrastructure- and professional services; and Evidian, which will be future-focused on digital transformation, big data and cybersecurity. We believe this is a cautionary tale for other incumbents using acquisitions to accrue new capabilities quickly – cultures don’t integrate easily.
Here are some of my thoughts on the restructuring:
1. What does the restructure mean for Atos:
Atos is one of the European giants in TMT. It has seen tremendous growth through M&A – acquiring businesses from competitors and non-core assets from other players, while expanding its global footprint. It was a model for doing M&A in the TMT sector.
Then it began diversifying into high tech, high potential companies like Bull, while aiming to grow its top line through the acquisition of too many targets in the managed infrastructure service space. Atos is a people business. Tech-led companies have totally different cultures and ways of working, which Atos failed to recognise and integrate. It failed to make the magic happen.
In 2021, it announced its potential acquisition of DXC Technology in the USA for $10 billion. This spooked the market and Atos stock started collapsing. Atos managed to stop the process, but shareholders began scrutinising its acquisitions over the last 10 years and found the group’s strategy was not as successful as they thought. Acquisitions didn’t appear to be properly integrated and weren’t generating the expected cross-selling potential and improved profitability. New business lines like big data failed to compensate for the decline of old businesses.
Now the emphasis is on Atos finding an exit.
2. What industry trend does the Atos split point to?
Atos has long been a key consolidator of the industry and remains one of the main players on the market. Its situation shows that even when you have the brand equity, size and market recognition, it is not easy to diversify into new businesses where the culture, mind-set and employee profiles are radically different from your original business.
In the last 10 years, many TMT groups have grown super-fast through acquisitions, trying to accrue targets that bring strong expertise into quick-growing industry segments. We will probably see more goliaths making moves like Atos’ split; I wouldn’t be surprised to see the emergence of larger companies specialising in the ‘old school offering’ on one side, versus players focused on new, more dynamic TMT verticals like cybersecurity on the other. I think the large ‘full-service’ TMT service company business model is a bit dated. We’ll see more specialised entities with their own governance systems and strategies in the future.
3. Atos’ spinoff strategy is being compared to IBM’s restructuring (IBM spun off its legacy IT infrastructure business into a new unit called Kyndryl). What can Atos learn from IBM?
There are some obvious similarities, including that both companies had different businesses, growing at different paces, and also very different underlying market trends.
The issues facing IBM were arguably even deeper than Atos’ challenges, given that the business has a hardware and professional services background, which meant it had to reinvent its ways of working and go-to-market strategy.
Importantly, IBM also took a long time to make its decision; Atos has decided to restructure relatively fast. Hopefully this will help its two companies to hit their targets faster than IBM, which reported almost record-breaking declines.
4. How will the split impact investor confidence?
Right now, the Atos stock price is significantly down, and brokers are advising shareholders to sell the stock. Atos’ top executives cannot seem to garner support from the market, which means there are lots of rumours regarding the potential takeover of the business – especially Evidian. The market is murmuring that this may soon be acquired by other European companies in the field. This means investors and shareholders cannot predict what will happen in the future. It also opens the door for activist investors to invest and have a say on the strategy going forward.
5. So, is the split a good move for Atos?
It’s hard to say. It was probably the best they could do considering the market conditions, trends and financial situation they were in. The governing bodies of the two new structures will be under tight scrutiny from the market. It will be one to watch!
6. Finally, what are the implications for M&A and the TMT sector at large?
Most likely, Europe has lost one of its key consolidators for the next couple of years. The M&A market probably won’t be impacted, although some opportunities may be created for Atos’ competitors to engage with Atos and acquire its non-core businesses.
Other large TMT companies may approach diversification with more trepidation. They will certainly need to focus more on integration and how they will leverage new businesses successfully.