Tieto and Evry merge to create a regional IT software and services powerhouse in the Nordics

Thursday, June 27 2019

Tieto, one of the Nordic region’s largest IT systems integrators, has agreed a merger with fellow systems integrator Evry in a deal reportedly worth around €1.5 billion (US$1.7 billion). Tieto is headquartered in Finland while Evry is based in Norway, but both have a global presence with offices in countries in their home region, as well as Central and Eastern Europe, Asia and the United States. Both are focused on digital IT services and systems management, differentiating them from other channel partners in the region, such as Atea and Dustin, which derive more of their revenue from IT hardware resell. The two companies had a combined annual revenue of nearly €3 billion (US$3.4 billion) in 2018.

The Nordic channel landscape has experienced particularly high levels of merger and acquisition activity in the last few years. Local and international resellers, service providers and systems integrators have invested heavily in expanding their technological and geographical reach. Companies such as CGI, DXC, Infosys, TCS and Orange have all contributed to this trend. They have acquired cloud service providers, software licensing specialists, application management developers and security partners. The fight for enterprise and public sector business is tough and the choice on offer for customers is good, so the new combined business (to be called TietoEvry) will have to work hard to differentiate and provide more compelling offers once the merger has been finalized.

Tieto and Evry finally combine their complementary capabilities

Tieto, with an annual revenue of €1.6 billion (US$1.8 billion) in 2018, is the larger of the two companies and the announcement of the merger made much of the synergies the companies enjoy. Both companies provide managed workspace services, software and application management, and hybrid infrastructure consulting, designing strategies for hybrid infrastructure and cloud customers. Both see their core business coming from large IT transformation projects in financial services, the public sector, healthcare and manufacturing verticals. They are also key partners for AWS, Dell EMC, Google, HPE, IFS, Microsoft, SAP, Salesforce and VMware. But there are several important differences between them. Tieto, for example, has a large on-premises mainframe and infrastructure business, while Evry outsources its infrastructure services to IBM.

The complementary nature of their capabilities and market presence means the merger has been anticipated for some time, but a combination of factors has led to the deal finally being sanctioned. At the end of 2018, Evry signed an eight-year deal for a range of managed services with the Finnish division of Handelsbanken, a large financial services company based in Sweden. The deal included the management of card and payment services, and personal and corporate Internet banking services, and is worth an estimated €66 million (US$75 million). It was a significant breakthrough for Evry in Finland, particularly in a core vertical for Tieto. It will have been one more reminder that one of its largest peers in the region was a strong competitor in its own home market and will have been a compelling reason for joining forces. External competitive pressure from the global systems integrators has also been building for some time.

Global systems integrators pose a threat to the local players

TietoEvry’s competition comes from several sources, including some of the largest local resellers, which are engaged in IT transformation for enterprise and public sector customers. The most significant pressure, though, comes from global systems integrators that have made several acquisitions across the Nordic region and contributed to significant consolidation at the top end of the market.

CGI, for example, has acquired two companies in the region since the end of 2017. In October 2017 it bought Affecto, a business intelligence and data management software specialist in Finland with a strong Microsoft relationship due to its Power BI capabilities. Affecto was a part of a company that merged with Tieto 20 years ago but which was released to help the merger gain regulatory approval. CGI’s acquisition of Acando in Sweden, in March 2019, was much larger and brought significant skills in Microsoft, NetSuite and SAP software.

DXC Technology has also been expanding its reach in the Nordics, buying BusinessNow in Sweden at the end of 2018, which allows it to serve customers with ServiceNow support requirements. Its most recent acquisition, EG in Denmark in January 2019, is focused on Microsoft Dynamics and SAP, allowing it to grow its business process management, ERP and CRM capabilities.

Systems integrators headquartered in India have long been invested in the Nordics, and established brands such as Tata Consulting Services and Infosys are two of the leading IT services providers in the region. Infosys has recently invested in its CRM capabilities through the acquisition in January 2019 of Fluido in Finland, one of Salesforce’s strongest partners in EMEA.

Differentiation for Tieto is key in a competitive outsourcing market

There are two main reasons why acquisition activity in the Nordics has been so strong. The region is an early adopter of higher-value technology and services and is attractive to foreign investors. Equally, certain regulatory issues regarding the location and management of data in financial services, the public sector and healthcare mean local players will always be important to customers. To deliver services for enterprises and the public sector, IT providers must demonstrate a dedicated local presence.

The pattern from some of the most recent acquisitions is clear. Customers are still engaging systems integrators in their core activities around professional services, business process outsourcing, managed workspaces, CRM and ERP. Cost controls and access to a broad range of services are still the key influences on a customer’s buying decision when engaging a systems integrator. The systems integrators themselves see their value in larger business strategy consulting and IT transformations. For it to make sense, the merger between Tieto and Evry must deliver economies of scale and transformation capabilities so that the combined company might keep pace with its many competitors.

The merger will almost certainly result in sales and administrative staff being laid off. This was a point described tactfully by Tieto’s CEO Kimmo Alkio during the merger announcement as “typical synergies”. Conversely, there has been little information regarding the possible technology efficiencies that might result, such as Tieto replicating Evry’s approach to outsourced IT infrastructure. Some economies of scale will be gained by merging the hardware sourcing of IT infrastructure from Dell EMC and HPE, and the added weight of the combined company will give it more power with its technology partners overall. There will also be some bumps along the road as the integration of two large internal financial and cultural systems is always a costly, lengthy and difficult process, though they may benefit from their shared Nordic cultures. For now, the strategy must be to steady the ship and analyze the respective customer contracts before implementing sales and technology strategies at a global level. The combined strengths of Tieto and Evry in delivering transformative strategies for companies in highly regulated sectors can be a strong differentiator, particularly with the financial services, manufacturing and healthcare industries likely to experience high levels of disruption in the coming years.

 

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