Supply Side
Sopra / Steria merger reduces outsourcing choice again

The recent merger of two large French outsourcing firms may be positive for the firms involved, but arguably it is not good news for the many public sector organisations who are customers or Steria and Sopra. Technically, it is a friendly acquisition of Steria by Sopra, and the new firm, creatively called Sopra Steria Group, will have revenues of EUR 3.1bn (based on pro forma 2013 data) and operations in 24 countries with more than 35,000 staff.

Sopra offer a full range of IT services, with strengths in area such as system integration, whilst Steria is not dissimilar but perhaps a little more focused on business process outsourcing as well as IT services.

The Wall Street Journal reported this from Pierre Pasquier, Chairman of Sopra:

“This success will enable us to accelerate the collaboration between our two companies so as to present, in the near future, our organisational plan for the new combined entity, Sopra Steria Group. The strong participation of investors and shareholders of Steria, most of whom have tendered their shares to the Offer, illustrates their endorsement of the project we have presented.”

Choice is good!

Choice is good!

I’m sure the firms would dispute this and talk about the merger benefits (greater efficiency, sharing of knowledge and so on). But we are very cynical about these benefits. Analysis has shown that most mergers and acquisitions destroy shareholder value, and if this one really does lead to efficiencies, then perhaps customers of the firms should be asking for price reductions in return!

Mergers can also be very distracting for everyone involved, with attention focused on who is going to get the top jobs, how will the new entity be structured and so on, rather than on the customer and day to day performance. For the customer, the account management team or other key contacts may change, or there may be new processes implemented.

At a more macro level, a deal like this also reduces competition and choice in some key markets. Ironically, Steria has been seen (certainly in the UK) as an up and coming, smaller challenger to the giant outsourcing firms such as Accenture and IBM. The UK Minister for Procurement even thought Sopra was an SME (small and medium enterprise)! Now, the new entity is well on its way to becoming another giant firm, and there is one less choice in the marketplace for buyers.

Perhaps we’re being too negative here. Perhaps the strong new firm will become a great European success story, offering great service to its public and private sector clients. We’ll see.