Sopra Group SA (SOP) agreed to buy Groupe Steria SCA (RIA) for about 730 million euros ($1 billion) in stock as two of France’s oldest computer-services providers combine to win customers from larger rivals.
Sopra will give one new share for four Steria shares, valuing Steria’s stock at about 22 euros apiece, the companies said today. That’s 40 percent more than Velizy, France-based Steria’s most recent closing price.
The combination helps the companies offer a wider range of services as they compete against larger peers International Business Machines Corp. (IBM:US) and Accenture Plc (ACN:US) as well as local rivals Atos and Cap Gemini SA. (CAP) Sopra and Steria are also targeting annual savings of 62 million euros as they seek to boost profit margins.
“It’s a good idea because for these kind of mid-cap companies in IT services, critical size is very important for winning contracts,” Emmanuel Parot, an analyst at Gilbert Dupont in Paris, said before the announcement. The companies are complementary geographically, he said. Sopra had 68 percent of revenue coming from France in 2012, while Steria got 40 percent of sales from the U.K. that year, according to data compiled by Bloomberg.
Pierre Pasquier, chairman and founder of Sopra, will also be chairman of the joint company, while Steria Chief Executive Officer Francois Enaud will be the enlarged entity’s CEO.
Shares of Paris-based Sopra added 49 percent over the past 12 months through April 4, while Steria rose 47 percent. Shares of both companies, halted yesterday amid reports of merger talks, remained suspended.
Both boards back the deal and an official offer could be filed next month, the companies said. The average premium in 81 information-technology services deals over the past 12 months was 43 percent, according to data compiled by Bloomberg.
IT-services providers are combining as work-intensive processes such as installing software on desktop computers become less profitable. Aurelius AG, based in Munich, today announced a deal to buy Individual Desktop Solutions GmbH, a subsidiary of Deutsche Telekom AG’s corporate-customer unit. Scheer Group GmbH last week agreed to buy Software AG’s SAP consulting operations for German-speaking markets.
“The market for IT services is gradually changing and may be disappearing and it’s being replace by a new model,” Enaud said on a conference call. “We will no longer be an integrator but a creator of services, but we need the resources to do this.”
Sopra and Steria were both founded in the 1960s and are among the oldest computer-services providers in Europe. Sopra’s revenue rose 11 percent last year, while sales at Steria shrank by 4 percent.
The combination creates a computer-services provider with sales of 3.1 billion euros, trailing Cap Gemini’s 10.1 billion euros. The companies said they target joint revenue exceeding 4 billion euros and an operating margin approaching 10 percent. Sopra and Steria together employ about 35,000 people.
Sopra manages analytics and finance software for Airbus Group NV. It has also worked with Credit Agricole SA to migrate regional banks to a uniform computer system and has developed a system for EasyJet Plc to help allocate seats on flights.
Sopra has been the more acquisitive of the two companies, adding HR Access Solutions SAS from FMR LLC as well as COR&FJA Banking Solutions GmbH last year.
Sopra was advised by Societe Generale SA, while Steria had retained BNP Paribas SA.
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