news Diversified listed IT services group CSG today revealed it had received a takeover offer from an un-named suitor which saw shareholders offered a substantial premium on their current holding in the company.

“CSG announces that it has received a non-binding, indicative and confidential proposal to acquire all of the issued fully-paid ordinary shares of the company by way of an off-market takeover offer,” the company said in a sparsely worded announcement to the Australian Stock Exchange this morning. “The proposed offer price is $1.20 cash per share with no adjustment for the final dividend of $0.03 per share to be paid on 4 October 2011.”

CSG said its board had not yet formed a view on whether to recommend the buyout to its shareholders and recommended they take no action yet. It has advised Macquarie Capital as its financial adviser and DLA Piper Australia as its legal advisor and pans to make a further announcement on the matter “in due course”.

The company is a relatively new player on the Australian Stock Exchange, having listed just four years ago in April 2007, an even which cemented the fortunes of its managing director and chief executive Denis Mackenzie. Headquartered in Darwin, the company provides two main types of technology services – the first being fairly traditional business technology solutions and the second being managed print, voice and data services.

CSG has established a strong foothold in the Northern Territory Government, but has also been making its way into Australia’s other states over the past several years, expanding its headcount to about 1500, raising significant amounts of capital and making acquisitions along the way. It is especially strong in the public sector.

The company is one of a handful of mid-tier IT services firms publicly listed in Australia – among them SMS Management and Technology, UXC, Oakton and ASG – who have enjoyed relatively stable growth over the past few years, surviving the global financial crisis and the implosion of a small number of similar companies (including, for example, Commander, part of which was bought by CSG) along the way.

opinion/analysis
Although there are fairly constant rumours of one kind or another, Australia’s cadre of mid-tier IT services firms have remained quite stable for the past three to four years. Much of the problem appears to have been a lack of suitors. There has been little value evident from mergers of equals in the sector, and larger competitors such as IBM, CSC and HP haven’t demonstrated an appetite for making acquisitions in Australia.

With limited potential for international expansion or rapid growth, private equity firms have likewise not been that interested in IT services firms in Australia – preferring to go after software houses such as MYOB and Mincom.

Perhaps the only major acquirer of IT services firms in Australia over the past few years has been Fujitsu, which picked up Kaz from Telstra, as well as a number of smaller players. An acquisition in the printing sector which CSG is strong in may make sense for Fujitsu – although it could also make sense for a number of other similar companies with proprietary printing assets.

In May 2010, CSG entered an extensive agreement with Canon, in which CSG became a Canon multi-function device (integrated printer) reseller, as well as taking sub-contractor ownership of some 10,500 Canon MFDs located around Australia. It seems unlikely, given how recent this transaction was, that Canon itself could be interested in acquiring CSG – and this arrangement might also make it more complex for a competing manufacturer to acquire the company.

To be honest, I simply have no idea at this point who would be interested in acquiring CSG. However, it will be interesting to see how this one plays out.

Image credit: Vangelis Thomaidis, royalty free

The global sharemarket rout triggered by the downgrade of the US Government’s credit rating has had a dramatic effect on Australian technology stocks, with all of the nation’s major listed technology companies suffering share price drops over the past several days ranging from three percent to over 22 percent.

Australia has several dozen listed technology stocks. Of these, the largest and most closely watched is Telstra, which has a wide diversity of investors ranging from large institutional players such as banks all the way down to so-called ‘Mum and Dad’ investors who picked up the company’s shares during its lengthy privatisation.

Out of all of Australia’s technology stocks, however, Telstra has been one of the least hit by the financial saga which has unfurled globally since the weekend, with the company’s share price sinking only 5.09 percent since Monday.

The telco’s little brother TPG wasn’t so lucky, however, taking a 14.06 percent body blow to its share price in the past two days. The company is now trading at $1.28, which is a hair above the lowest level it has seen in a year, $1.23. Fellow telco iiNet was also substantially affected by the sell-off, with the company’s share price plunging 7.98 percent to $2.13.

That price leaves iiNet down a solid dollar from its high point over the past year of $3.13 — and also just slightly above its year’s worst price.

A large part of Australia’s listed technology sector is made up of IT services companies, including names such as UXC, DWS, SMS Management & Technology, Oakton and the diversified Data#3 group. Most of this cluster of companies has also been affected by the sharemarket rout, with ASG being hit the worst percentage-wise, sinking 22.67 percent in the past several days.

Oakton shed 5.17 percent of its value, SMS 9.68 percent, CSG almost 15 percent, DWS 8.40 percent and UXC a solid 10.71 percent.

The news came as local IT services firms started to deliver mixed results in announcing their latest financial standing this week. Oakton’s overall revenue (not including the results of its court settlement with partner Tenix) was flat, but profits were 35 percent down on the previous year, and the company’s chief executive warned the company’s Victorian operation had “significantly underperformed”.

Overall, the company anticipated an increased demand for its services across most sector, Wilson said, but the executive also warned that overall domestic demand might be adversely impacted by what he described as “international economic issues”.

In contrast, Data#3 noted last week that the company expected its profits to be ahead of previous guidance, with the company planning to book a profit before tax up about 38 percent. Revenue was on track to reach $697 million — about 16 percent up on the previous year. “While the market remains quite fragile, we’ve once again been able to achieve a great result for shareholders,” said Data#3 managing director John Grant.

Broader commentary on the market this afternoon seems to be focusing around the idea that the steep sharemarket fall — which wiped billions off the value of Australian companies — had largely bottomed out, with investors looking to capitalise on the low prices and add cheap pickings to their portfolio.

Image credit: thenails, Creative Commons

German software giant SAP doesn’t appear to have placed a big emphasis on selling its applications in Australia over the past few years under the new style of software-as-a-service or cloud computing model. But all that might be about to change, courtesy of an offering launched last week by one of its largest local partners.

Oxygen, which is a subsidiary of overarching IT services group UXC focused on providing services around SAP’s products, last week announced it would launch what it dubbed ‘Oxygen on Demand’, badging the solution as a complete SAP package.

“There are other SAP cloud offerings available,” the company’s managing director Mike Smith said in a statement, “but this is the first to offer a seamless blend of infrastructure and specialist SAP support services with integrated management of customers’ SAP platform including applications and database, plus all the supporting services.”

“It’s the first ‘soup to nuts’ cloud offering from an SAP specialist.”

Among enterprise software vendors, Microsoft, SAP and Oracle have been known over the past decade for their resistance to the software as a service or cloud computing model which rivals Salesforce.com, Netsuite and Google have built from the ground up over that time. SAP does have what it terms an ‘on demand’ strategy, but so far the initiative mainly appears focused in Australia around certain markets such as the small to medium business market which Netsuite specialises in, as well as the business intelligence division which SAP has built up from its Business Objects acquisition.

Oxygen’s Smith said his company launched the service in response to “strong customer demand”.

“When talking with new customers the most common questions we are asked are: ‘Can you host it and can you finance it’,” he said. “Customers – especially mid-sized companies – now understand the benefits of moving infrastructure and applications to the cloud. They want to shift costs from capex to opex. They want the flexibility and cost savings from being able to increase or decrease the server capacity as business needs change. “

“At the same time, they want to be confident that their data is secure and highly available. And they want specialist SAP consulting and service support not generally available from generic cloud hosting providers,” Smith says.

Smith said that Oxygen on Demand would offer flexibility and speed of deployment, as well as lower capital cost entry barriers for customers looking at SAP’s offerings for the first time, while existing customers could be interested in lower overall costs, high included data security and “a whole new order of flexibility”. The service is available now.

A spokesperson from Oxygen was not immediately available to clarify key details about the on-demand platform, such as where it would be hosted, and what precise SAP solutions it was possible to have provided under the software as a service model.

The news comes as Australian organisations and vendors continue to demonstrate increasing levels of interest in cloud computing and hosted software models. Oracle has announced that it plans to offer a customer relationship management solution from a datacentre hosted in Australia by local partner Harbour MSP, while rival Salesforce.com has recently confirmed it was examining the case to provide some services from a local datacentre.

Image credit: Corey Mathews, royalty free

These photos are from UXC subsidiary Red Rock’s recent Oracle Leadership Forum, which was held at Sydney’s Luna Park on March 17.

Image credit: Red Rock

Reverse disclosure: Red Rock has previously advertised the Leadership Forum on Delimiter, but this photo gallery was not part of that advertising contract — we just liked the pictures!

UXC said the contract will cover the building and management of a specialised IT infrastructure environment, over a period of three years which could be extended to five. UXC managing director Cris Nicolli said the contract was a win for both companies. “This is a very exciting contract for us and DuluxGroup as it requires us to build a complete, custom IT infrastructure and environment alongside DuluxGroup from the ground up,” he said.

UXC maintained the deal was a “substantial” agreement that would provide infrastructure management and support services for DuluxGroup which employs about 2,500 people in Australia, New Zealand, Papua New Guinea, South-East Asia and China.

The contract – UXC said in a statement – would have an impact on the work of 2,000 DuluxGroup systems users. Commenting on the achievement, Nicolli said UXC Connect was chosen because of its flexibility and ability to solve problems. “It is a substantial reflection of UXC capability and its people that we have been entrusted to support DuluxGroup,” he said.

More detailed information has been sought and will be published as soon as made available.

Hey everyone,

I just wanted to take a moment out to thank Delimiter’s amazing site sponsors this month. As you know, producing journalism can be a costly exercise, but we’re fortunate enough to have the support of the Australian technology and media industries behind us, to make sure we can keep the lights on and that supplies of bacon are plentiful.

This month, our sponsors are Red Rock Consulting and Telcoinabox, and we’re also helping out with getting the word out about the WordCamp Melbourne conference as a media partner.

As many of you know, Red Rock is a subsidiary of UXC, and is a great Australian company focused on the Oracle ecosystem. This month, they’d like to let you know about their upcoming Leadership Forum event happening in Sydney on 17 March. The forum is the largest Oracle partner event in Australia and New Zealand, and will feature over thirty presentations devoted to all aspects of the Oracle technology stack.

Red Rock has a special deal going for Delimiter readers, so check it out.

Telcoinabox is also a great Australian company and runs a telecommunications franchise system for individuals or existing businesses. They’re looking for small ISPs or telcos to acquire at the moment to provide opportunities for their franchisees, so get in contact if you are in a situation to sell.

WordCamp Melbourne will be held on the 26 and 27th of February, so you don’t have much time to get organised for it — make sure to check it out if you’re involved in WordPress at all, they have some great speakers — including Bronson Quick from Sennza, who has done quite a bit of design work on Delimiter itself from time to time.

In all of these cases, please click the ads to the left of this article to find out more. We know clicking on ads can a pain, but it really does help Delimiter and the sponsors quite a bit if you check out what they’ve got to offer.

Finally, one of our other partners, ZDNet.com.au, has had a huge event this morning — the TechLines live debate about cloud computing. We’d recommend you check this out as well, as it was a really exciting special event for the team there.

Anyway, that’s enough from me, on with the articles!

Cheers,

Renai LeMay
Publisher, Delimiter

blog One can understand the frustration of technology companies in dealing with the media. In this video interview with business and investment commentator Peter Switzer, one gets the feeling that UXC Connect chief Paul Timmins feels like he’s trying to swim upstream.

Switzer might know business, but although his site even has a technology section, he clearly just isn’t quite sure what Timmins is talking about.

“They want to enterprise-enable the iPad,” Timmins says at one point, referring to the common process of taking a consumer-level technology and making it ready for large organisations. “But that’s real tech-talk, you’ve got normal people out there,” replies Switzer. “Enterprise … enable. That means make it good for businesses?”

But it’s when Switzer started talking about “BlackBerry-izing” the iPad that we really fell off the train.

Of course, Timmins doesn’t always make it easy for Switzer. “What the new technology does, Peter, is, it’s the new wave of technology,” he says at one point. Illuminating!

Now there is no doubt that the iPad is making waves inside large Australian organisations at the moment. UXC Connect, as Timmins tells Switzer, has recently deployed 2,000 of the tablet devices for a multinational organisation. And there are already a number of local groups which have hundreds in use — if not thousands by now.

But Switzer’s attitude perhaps does much to illustrate that it will take many people quite a while longer to understand the speed of change currently going on in the market. Apple’s brand is associated with the consumer — it will take a while for the whole business community to see the iPad as a credible business tool and not just a handy toy to keep the kids busy watching YouTube.

In the meantime, we’ve got a brief recommendation for Timmins himself. Mate, come in and do the same video interview with Delimiter. We actually know what you’re talking about ;)

Image credit: UXC Connect

Diversified Australian IT services group UXC has decided to continue as an independent company for now, after deciding not to accept offers from parts or the whole of its business from similar companies and private equity firms.

For the past few months the company has been in a period of due diligence as part of a strategic review into its operations initiated in February. The review came about not as a result of poor performance in UXC’s IT businesses, but as a result of poor performance in the environmental solutions arm of its Field Solutions Group, which provides services to utilities and government.

“As part of this review, discussions and negotiations have taken place with many parties to purchase all or a part of UXC,” the company said in a statement this morning, noting offers had come from two private equity firms for the whole of UXC, for its IT group from three trade buyers — international and domestic, just its Business Solutions Group from a trade buyer, and also individual business units, including the Field Solutions Group

UXC is still continuing discussions with two interested parties, but the company said it believed divestment of some of its assets may not realise “the underlying value and potential” in the company. It currently values its IT assets with a value higher than $300 million, and its Field Solutions Group with a value approaching $70 million.

In particular, it will look at separating its IT assets from its environmental assets through a demerger process — the benefits of which it said were compelling.

In the meantime, UXC will continue to trade as an independent company, and will appoint a series of executives to management positions to strengthen its internal governance, the first of which will be UXC Business Solutions Group CEO Cris Nicolli to the role of managing director of UXC as a whole.

UXC executive chairman Geoff Lord — the company’s largest shareholder — will continue with the company as chairman, but will no longer have executive duties. He will have a focus on “strategic initiatives” in this new role.

“Further appointments are being pursued in both the Business Solutions Group and Field Solutions Group, to add further depth to management and support the new managing director,” the company said.

UXC has traditionally had a federated model, whereby where each of its specialised business units, for example Integ, which focuses on unified communications, or Oxygen, which forces on SAP-based solutions — have historically operated independently. It is not yet clear to what extent the planned appointments will affect this model.

Image credit: Steve Ford Elliott, royalty free

Australian IT services company SMS Managament & Technology today said it was in due diligence with two potential acquisition targets as it looked to continue to bolt on other companies to its already growing base.

“In each case, they’re specialists in an area which expands our capabilities and market footprint,” said the company’s chief executive Tom Stianos in an interview this morning after the group’s annual financial results disclosure.

If the acquisitions do proceed, they will do even more to cement SMS’s growing reputation as a serial acquirer in the enterprise IT services space in Australia. Earlier this year the company picked up Oracle consultancy Bright Blue Solutions, for example, and last year it bought two other companies, Aipex (which provides services around the Tibco technology line) and Pelion, which focuses on data management.

Stianos said SMS still had a good cash reserve for future acquisitions.

Rival IT services group UXC had put itself on the market, but Stianos would not be drawn on whether SMS had taken a look at the company specifically. “We’ve looked at all the big players,” he said. “But we’ve found that it’s more value-accretive for us to acquire a small capability — a specialist in an area — and use that to acquire organic growth.”

There was no win for shareholders in “doubling numbers without doubling profit”, Stianos said.

Australia’s IT services market is currently characterised by a plethora of mid-sized players like SMS, Oakton, CSG, DWS, UXC, ASG and more that are increasingly putting the pressure on bigger multinationals like IBM, HP, CSC and Fujitsu.

Stianos said there were some arguments that consolidation should proceed in the sector, but he would never let “ego” drive strategic decisions for SMS. “We’ll do what’s right for the company and for shareholders,” he said.

The results
The second half of the 2010 financial year was a better period for SMS than the first half. The company today revealed that for the year ended 30 June, it had increased revenue by 7 percent, reaching $247.6 million, with EBITDA up 15 percent to $38.1 million and net profit after tax up 15 percent to $27.9 million.

But Stianos said most of the revenue growth came from the second half of the year — with revenue for that half up 19 percent on the previous corresponding period, compared with only a 7 percent rise for the first half.

SMS’s staff numbers have jumped upwards since June 2009 as well, with the company taking on an additional 204 staff in the period — mostly in the second half — including 162 permanent consultants and 32 contractors.

SMS went through a staff chop in late 2008 as the global financial crisis hit the company hard. However, Stianos said he thought the up and down rollercoaster of staff numbers had not affected the company’s culture.

“I think our culture’s quite vigorous and strong,” he said. “If you’re adding 20 percent, that means that 80 percent of the people are already there and well-inducted.” He added he thought that it was the behaviour and values of the leadership team that made a company what it was.

In terms of future growth, the executive said he was seeing demand from most sectors, and that some would open up further shortly — for example, with the resolution of the government business “hiatus” created by the Federal Election.

And the SMS chief said while there was still a debate about the potential benefits to be gained from the National Broadband Network project — which the Coalition will cancel if it wins office — he was a believer. “People underestimate the innovation from the digital economy — really, it’s going to spur off a whole new wave of applications,” he said, noting he was confident other CEOs of technology companies had a similar view.

“SMS is not going to be involved in rolling out the cables,” he said. “We’re not about the tracks — but we are about the locomotives.”

Image credit: SMS Management & Technology

Troubled diversified technology services group UXC has defended the fact that its two most senior executives are on annual leave while it is negotiating with other groups over its potential acquisition.

In a statement issued late Friday, UXC revealed it had entered a period of due diligence where another party was examining its books. The due diligence period expires in July. UXC is an umbrella organisation which owns a number of Australian IT services and consulting brands — with subsidiaries like Gibson-Quai AAS, Red Rock, Telsyte, Oxygen and Integ.

UXC chief financial and risk officer Rowan Cole confirmed this morning that UXC executive chairman Geoff Lord and finance director/company secretary Mark Hubbard were overseas on annual leave.
“Nothing is going to happen in the time that they’re away. I think it shows trust in the rest of the company,” he said.

The period of due diligence is the latest consequence after UXC announced in late February that it was to undertake a strategic review of the future of the business, aimed at “unlocking greater shareholder value”. Last week it said it had examined various alternatives with a number of significant parties, entering due diligence with one company that could lead to a full bid, although “many” of the other parties remained interested in UXC.

The review came about not as a result of poor performance in UXC’s IT businesses, but as a result of poor performance in the environmental solutions arm of its Field Solutions Group, which provides services to utilities and government.

This morning, Cole said the due diligence arrangement at the moment concerned a company which could make a bid to acquire the whole of UXC. But if that deal fell through, he said, alternatively UXC’s IT business or its utilities business could be acquired separately — or UXC could even continue to trade as it was.

He noted the IT services side of UXC’s business was “powering ahead”. In last week’s statement, UXC divulged the news that its IT group would generate record earnings before interest, taxation, depreciation and amortisation of about $450 million for this financial year — which UXC claimed would make it “the largest Australian-owned IT services business in the region”.

Lord himself is understood to be one of the largest shareholders in UXC, holding some 5.72 percent of the company’s stock as at 17 September 2009, according to the company’s last annual report.

Image credit: Delimiter screenshot of E*TRADE website