Outsourcer Electronic Data Systems will spend $1.5 billion to $2 billion annually during the next few years acquiring businesses that provide tech services in the economy’s hottest growth markets, including health care, financial services, and government services, senior EDS officials said.
“We’ve completed our financial turnaround and now it’s time to enhance our growth,” said Mike Jordan, CEO, EDS, speaking to financial analysts Tuesday in New York City. Jordan said EDS would spend $1.5 billion to $2 billion annually to acquire smaller outsourcers through “2007 and beyond.”
Earlier this month, EDS reported that revenue for 2006 was $21.3 billion, up eight percent from 2005, while net income was $522 million, compared with $219 million a year ago. The results stood in marked contrast to previous years of late, when EDS posted either meager profits or outright losses.
Having achieved financial stability, EDS officials on Tuesday said the company will now make growth a priority and plan on “targeted M&A’s” in the health care, government, and financial services sectors. “We will use M&A’s to accelerate the growth of our more attractive segments,” Paul Currie, EDS’ executive VP for corporate strategy, Currie said, adding that EDS already is examining “multiple opportunities” for acquisitions.
Health care providers, financial services companies, and local and state governments will be among the economy’s more aggressive adopters of software architectures that facilitate self-service by customer and business partners — a situation that should create strong demand for outsourced application development services, said COO, Ron Rittenmeyer, EDS.
EDS is counting on the trend to help drive growth in its application development business. “We’ve had a pretty good [application] maintenance business, but not a great development business,” said Rittenmeyer.
EDS’ last major acquisition was last June, when it completed a majority buyout of Indian outsourcer Mphasis for $380 million in cash. It’s likely that any businesses acquired by EDS also will have a strong presence in India or other low-cost destinations, given the growing importance of offshore resources in the company’s mix of service offerings. Some 95% of all outsourcing deals signed by EDS in 2005 had an offshore component, according to Rittenmeyer.
Rittenmeyer called India, where the company maintains 18,000 full-time employees, “critically important” to EDS. He also noted that the company is investing heavily to build out resources in Latin America, China, and Eastern Europe. “If you go to Mumbai, everyone in the world is lined up” for skilled tech workers, said Rittenmeyer. Investing elsewhere gives EDS a chance to stay ahead of competitors such as IBM and Accenture, he said.
Also at the meeting, EDS officials said the company is expecting to post four percent revenue growth in 2007, confirming earlier guidance, and is looking to cut operating costs by one million dollars during the year.
