At a delegate conference in London last week entitled Merger, Acquisition and Growth Strategies in Turbulent Times organised by the Computing Services Association, Charles Goldfinger, a director at London-based Broadview Associates Europe, gave an insight into the current trends in the French software and services market. He asked the question why should Germany, with a larger ecenomy and larger hardware base, have a smaller software and services market than France. He pointed to France’s tradition of subcontracting, and Germany’s abundance of captive companies and its lack of access to public markets. The public market in France, said Goldfinger, has provided a large source of growth for French software and services companies. In France, he continued, the market is dominated by professional services. He held Cap Gemini Sogeti SA up as a paragon. Cap Gemini’s success, Goldfinger evaluates, hangs on the company’s formula of pursuing large accounts, of bringing in technical assistance rather than going for fixed price contracts, and its strategy of aggressive growth, both by internal branching and external acquisitions. Another trend in France is to focus on financial services. Big names here include Axime SA, Sligos SA and SG2 SA, and close contenders SCBF, formerly a part of Group Concept SA and now a France Telecom associate, and Sopra SA. Characteristic of the French has always been the idea that buying up other companies is fine, but selling off parts of your own business is something that carries a stigma. The French fear that to put one’s company on the market is to say this company is in trouble, so risking client desertion. This fear has meant that many French companies have been reluctant to divest non-strategic businesses – Cap Gemini, for example, last year needed cash, but it didn’t automatically look at divesting some of its minority interests – Goldfinger suggests that this would be like putting the company’s manhood on the line. If a French company does get to crisis point – which usually happens before a company will sell – the deal is kept as hush-hush as possible. Buying, on the other hand, is fantastic. The French can’t get enough of it. In 1991, Cap Gemini Sogeti made one French purchase and three acquisitions abroad – including Hoskyns Plc and SD-Scicon Plc’s SCS Scientific Control Systems GmbH, while Sligos took three foreign companies on board, and GFI SA made six acquisitions, all in France.
Growth under 10%
In recent times though, Goldfinger noted, average company growth in France has slowed down to under 10%, from 25%, which to most of them is tantamount to going on welfare. As a result, companies have been subcontracting less, preferring fixed price contracts. With the ensuing increase in competition in the French software and services market, Goldfinger reckons, selling is just beginning to gain social acceptance. Several listed companies have had a very rough ride – Asystel SA went bankrupt, Concept is only just managing to survive, SMT Goupil SA has gone bankrupt and Seagull SA’s market value has decreased dramatically and the company badly needs new funds. It seems that at the moment public markets are a closed exit route. In France, there have been only four Second Marche introductions since 1990, including only one software and services company. And so, selling is becoming a very necessary option. The French seem to be easing into this process, by not exactly selling off parts of businesses, but rather selling off minority stakes in their companies. Steria SA, for example, chose to sell a 13% interest to Credit Lyonnais, in a strategic partnership. And, of course, the Cap Gemini-Debis GmbH deal could be seen as a significant step forward, as the Queen of the French software industry showed willingness to sell off some of the company jewels. Even more important, perhaps, is Debis parent Daimler-Benz AG’s option to take control of Cap Gemini in the future. For the UK company wanting to get into the French market, Goldfinger offered the following advice – the French are pretty keen to
get into the international market, and so are willing to talk to foreign companies, but confidentiality is paramount. Goldfinger advises that this can be taken only so far, that companies won’t even give the chairman’s name over the phone. The key, he says, is to talk about strategic partnerships, not about selling up.
