With little or no comment from industry watchers in the past 18 months, US staffing and IT services giant Modis Professional Services Inc has managed to build a European business with estimated revenue for fiscal 1999 of $336m. The transatlantic jump by the Jacksonville, Florida-based company has been achieved through a series of 11 acquisitions of largely UK IT staffing agencies and ERP implementers.
The ‘anchor’ for the new Modis International subsidiary came with the 55-million pound ($93 million) cash purchase in November 1997 of IT staffing agency Hunterskil Howard Plc. Hunterskil’s revenue for the fiscal year ended July 31, 1997, was roughly $115m. With five offices in the UK and over 1,000 contractors on assignment, Hunterskil provides programmers, Unix systems administrators and Windows NT support staff, as well as client-server development, and mainframe software maintenance and support staff. Its client list includes British Telecom, NatWest Bank, British Airways, Compaq’s Digital Equipment, and Yorkshire Electricity. The company also has a significant mainland European presence with contract staffing offices in Eindhoven, Paris, and Madrid serving clients such as Ericsson, Phillips, Siemens, Shell and IBM.
All other acquisitions are to be integrated around the Hunterskil management structure. As of June 21, both Hunterskil and recruitment consultants Cope Management (acquired in 1998) began operating under the Modis name. Tim Payne president of Modis Inc, stated that within 12 months all 11 companies would be under the Modis brand.
The Hunterskil buy was quickly followed by the cash purchase of SAP implementer IT Link for 10.9 million pounds ($18m) and specialist recruiter CSD Europe for an undisclosed amount. In the 18 months following these buys, Modis International has added a further eight European acquisitions. In all, 1998 saw the purchase of recruitment consultants FTR and RCaM, mainframe IT contractor Software Knowledge Ltd, UK SAP implementer Avalon, J D Edwards implementer UIS Ltd, application developer SKS and, in April this year, UK ERP and data warehousing consultant Intelligent Solutions.
Further acquisitions are planned though none will be larger than the Hunterskil buy according to Ross Eades, managing director of Modis International. We will be looking for companies in the $8m – $40m price range, said Eades, and any company we buy will have to have a proven record of both profitability and growth over the previous three years.
MPS Inc last year sold off its commercial staffing business Strategix for around $850m in cash to concentrate more on the higher-volume, though lower-margin IT staffing side of the business. The company now intends to move up the IT service value chain by targeting IT consulting and ERP implementation and services contracts. Modis also hopes to exploit what it believes to be a growing trend among large corporations to scale back the number of suppliers of IT services. Most recently, Modis client Citibank reduced the number of suppliers from over 200 to just nine.
IT services revenue for the MPS group as a whole increased 49% to $1.16bn in fiscal 1998. The group derived $329m from UK operations in 1998 although this figure includes a proportion of revenue from Badenoch and Clark, MPS’s accountancy and legal staffing agency. IT services and staffing revenue in the UK amounted to around $240m in fiscal 1998. Margins for the group’s IT services side of the business decreased to 25.9% from 26.8% for the previous year. This decrease is attributed to higher salaries, added benefits and the inclusion of revenue from the UK that is said to deliver lower margins than the US.
Modis International incorporates Modis Consulting, Modis Technology Solutions and Modis Enterprise Solutions divisions. Modis Consulting provides IT staffing and consulting services in most IT areas. Modis Technology Solutions offers services in internet development and e-commerce applications, custom application development, systems integration, data warehousing and training. Modis Enterprise Solutions is the European ERP division with a focus on systems from vendors SAP, PeopleSoft, Oracle, JD Edwards and Lawson Software. 1999 revenue is expected to be made up by a 66%, 20% and 14 % split between its Consulting, Enterprise Solutions and Technology Solutions divisions, respectively.
Eades says that growth in the future will come from both further acquisitions in the UK and Western Europe and organic growth, in equal measure. Organic growth will be generated through an aggressive strategy of cross-selling high-margin services between divisions and through the successful leveraging of its size, recruiting power and client relationships. The company identifies Keane Inc, Metamor Worldwide, Cambridge Technology Partners, Sapient Corp and Ciber Inc, as well as the Big 5 consulting houses, as being its main competitors.
