Atos Origin, a leading European information technology services provider, today announced that it has reached agreement to acquire KPMG Consulting in the UK and The Netherlands. The combined organisation will have 30,000 employees in more than 30 countries worldwide and will offer a full range of services - high-end business consulting, systems integration and managed services/outsourcing - to its global and European clients. The transaction, which is subject to partner, shareholder and regulatory approvals, will create a substantial base of operations in the United Kingdom, offering design, build and run services to both client bases. Together with recent major contract wins, the deal also positions Atos Origin as the clear leader in the Dutch IT services market.
Rationale and Commercial Benefits
With current combined revenues of EUR 600 million per annum and 2,800 employees, the acquisition of KPMG Consulting in the United Kingdom (UKC) and The Netherlands (NLC) represents a major strategic step for Atos Origin. As a result of this transaction the company will achieve two of its key strategic objectives. First, the deal will provide Atos Origin with a significant base of consulting operations, enabling it to offer a full set of services (design, build and run) to its global client base. Second, it will increase substantially the company's overall size in the UK market, which will now represent EUR 550 million per annum in revenues.
The principal commercial and operational benefits of this acquisition will come from:
- strong and recognised consulting capabilities in both the UK and The Netherlands
- extended capability to serve large global clients
- a highly complementary blue chip client base
- increased wallet share with common clients
- access to clients at board level
- complementary industry sector expertise
- enhanced potential to win outsourcing contracts
- enhanced management strengths
The resulting shape of Atos Origin will be well balanced, with significant scale in consulting, systems integration and managed services, as well as specialist processing capability in on-line services. Nearly 50% of the group's revenues will be recurrent, based on multiple-year contracts, and the combination of consulting and IT service activities will lead to enhanced commercial opportunities, especially for outsourcing.
KPMG Consulting in the UK and The Netherlands were originally developed within the respective national practices of KPMG International. Although the consulting business has remained owned by both accounting and consulting partners, it has been managed autonomously over the last two years, in anticipation of ultimate separation. In recent years there has also been pressure to separate the regulatory responsibilities of auditors from their commercial service operations. Furthermore clients seeking effective business solutions are increasingly requiring the seamless provision of consulting and IT services.
KPMG Consulting in the UK and The Netherlands are leaders in consulting in their respective countries, with current annual revenues of approximately EUR 400 million and EUR 200 million respectively and a total of 2,800 employees. Both companies have achieved strong revenue growth in recent years and, in spite of current weakness in the IT services market as a whole, are well positioned to resume significant revenue growth.
The top 10 clients in each of KPMG Consulting UK and The Netherlands contribute roughly one-third of their total revenues, thereby mirroring the focus in Atos Origin on blue-chip global clients. KPMG Consulting also has a number of close alliances with key solution vendors, most notably Oracle.
Financial and Shareholder Structure
Consideration for the transaction is EUR 657 million. This will be satisfied through the payment of EUR 422 million in cash and the issue of 3.66 million ORAs - bonds mandatorily redeemable in 3.66 million new Atos Origin shares one year after closing and issued at a price of EUR 64.2 per ORA, equivalent to EUR 235 million.
The cash element of the consideration will be financed by long-term debt. The combined pro-forma net debt at December 31st, 2001 would be approximately EUR 690 million. Net debt will represent approximately 1.4 times combined proforma 2002 EBITDA.
Consulting partners will also receive a performance-related earn-out in the form of warrants with a nominal exercise price. Through this exercise, consulting partners may receive up to a maximum of 1.41 million Atos Origin new shares if profitability and revenue targets are met in the financial years 2002 and 2003.
The transaction will be accretive to earnings per share immediately after closing, before goodwill amortisation and exceptional items and before the benefit of synergies arising from the combination.
KPMG accounting and consulting partners will own approximately 3.7% and 4.0% of the issued share capital of Atos Origin immediately after conversion of the ORAs. The accounting partners are required to hold their stock for a minimum period of one year. The consulting partners are required to hold their stock for up to four years, with one quarter of this holding being released each year.
The transaction was approved unanimously by the Supervisory Board. Royal Philips Electronics, Atos Origin's largest single shareholder, expressed support for the transaction. "This is a good deal for the Atos Origin shareholders", said Jan Hommen, Philips' Vice-Chairman and Chief Financial Officer. "The combination of Atos Origin with these parts of KPMG Consulting will enable the company to bring a more comprehensive and higher added-value offering to existing and future customers, especially in the UK and The Netherlands. It demonstrates the kind of strategic thinking we had in mind when we merged Origin with Atos in 2000." On conversion of the ORAs, Philips' shareholding will reduce from 48.6% to 44.9%.
Completion remains subject to conditions precedent, including the agreement of KPMG partners in the respective practices, the approval of Atos Origin shareholders for the issuance of ORAs, and regulatory consents.
Consulting will become a separate service line within Atos Origin and will maintain an independent identity in both the UK and The Netherlands, trading as Atos KPMG Consulting for a period of up to three years. The benefits of coordinating consulting and delivery services will be achieved both at a country management level and through the large client programme. KPMG Consulting partners will play key roles in strengthening the management of the group's large client programme, and in focussing our industry market and solution skills base.
When the deal is completed, Jeremy Anderson, Managing Partner of KPMG Consulting UK, will become a member of the Atos Origin Management Board, with responsibility for managing all the operations of Atos Origin in the UK.
Jos Zandhuis, Managing Partner of KPMG Consulting in the Netherlands, will become a member of the Management Board of the company's Dutch operations. He will have specific responsibility for all consulting and system integration activities in The Netherlands.
A Key Strategic Move for Atos Origin
Bernard Bourigeaud, Chairman of the Management Board and Chief Executive of Atos Origin commented:
"This is a key strategic step for Atos Origin, providing us with a substantial base of IT consultancy operations and a comprehensive service offering. We now have a significant presence in the UK IT services and consulting market, which has been one of two major targets for the geographic expansion of our activities. The result is a well balanced IT Services business in terms of both geographic and service mix.
KPMG Consulting has a very strong reputation in both the United Kingdom and The Netherlands. Its business model and cultural values are remarkably similar to those in Atos Origin and I am convinced that it will be a winning combination. I look forward to welcoming the staff of KPMG Consulting to the Company and together generating major new opportunities for our clients and staff, and enhanced value for our shareholders."
Mike Rake, KPMG UK Senior Partner and Chairman of KPMG International said:
"Two years ago, we stated our clear intention to move the consulting business into public ownership, to ensure that it is in the best position to continue delivering the services clients require in a fast-moving environment. This deal makes sense for all concerned. Our consulting businesses are linking with an organisation that brings real added value to their clients, and provides the critical mass to serve clients in Europe and globally.
The agreement means that KPMG now has a clear focus on its accountancy, audit, tax, financial and business advisory work, and the goal of growing our network for our clients on a global basis. We wish our colleagues in Consulting every success."
Ben van der Veer, Managing Partner of KPMG Netherlands is very satisfied with the result achieved:
"In Atos Origin, we have found an organisation that shares our vision of what it will take to succeed in the marketplace. We see this merger as an important step towards the creation of an elite global player in the business consulting and technology integration market. All parties clearly benefit from the agreement. Our consultants have excellent prospects in an organisation that meets their wishes and ambitions. Clients will benefit from the improved geographical diversity and the combined knowledge and experience in the field of consulting, system integration and outsourcing."
About Atos Origin
Atos Origin is a leading international business and technology integrator. Its business is turning client visions into results through the application of management consulting, enterprise, e-business and outsourcing solutions. The company has annual revenues of more than EUR 3 billion, operates in more than 30 countries worldwide and has 27,000 employees. Atos Origin's clients include ABN-Amro, Alstom, BNP Paribas, Euronext, Fiat, ICI, KPN, Lucent, Philips, Renault, Saudi Aramco, Shell, Unilever, Vivendi Universal and Wolters Kluwer.
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