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TwitterHP a suitor for Accenture?
Posted by Marc Brien, VP Research, Domicity Ltd.
(This post is based on research for an upcoming Domicity CORProfile competitive analysis study of a global cloud leader. Click here to receive advance notice of this report.)
Over the last decade, each of Hewlett-Packard’s CEOs has directed a big acquisition. Mark Hurd led the purchase of outsourcer EDS. Carly Fiorino managed the acquisition of Compaq. Léo Apotheker, even though he was CEO for less than 10 months, set the process in motion for HP’s upcoming $10-billion buyout of unstructured data analytics specialist Autonomy.
HP’s new CEO Meg Whitman, once in charge of the world’s foremost auctioneer Ebay, could soon be itching to make a bid on something big. Consulting and integration specialist Accenture makes sense as an acquisition.
Before he was released, Apotheker said HP should strengthen its services business by emphasizing more profitable short-term consulting and applications integration contracts. This would balance off the company’s large business in multi-year outsourcing engagements, which tend to be lower margin.
HP and Accenture know each other well. Accenture has been a significant systems integrator of HP products for some 20 years. Additionally, the head of sales for HP Enterprise Services John Maguire recently came to HP from Accenture in Jan. 2011.
Strengthening the consulting and applications integration business is an objective that Whitman and Executive Chair Ray Lane will likely also support. Acquiring Accenture would do the trick and provide plenty of raw material for a strong cloud consulting and integration business.
As a macro goal for its enterprise services business, overtaking market leader IBM has to be HP’s long-term objective. However, HP has a way to go. Its enterprise services revenue in the quarter ended July 31, 2011 was just 60% of IBM’s for the corresponding quarter (ended June 30).
Enterprise services is a market that expands slowly. Trying to catch IBM through organic growth would be a long, hard and potentially impossible slog. On the other hand, as the graph above shows, combining HP and Accenture (whose quarter ended Aug. 31) would instantly generate more services revenue than IBM.
If Whitman goes ahead with Apotheker’s announced spin-off of HP’s annual $40-billion PC business, IBM will assume HP’s coveted title: “World’s Largest Computer Company by Revenue”. Buying Accenture would return the lead to HP. Based on the most recent quarterly results, total revenue from all sectors of a merged HP-Accenture would have been 8% higher than IBM’s total revenue.
Of course, the acquisition of Accenture is not something that will happen right away. The purchase of Autonomy will weaken HP’s balance sheet. Multiple quarters of cash flow will be needed before HP is in a position to finance an Accenture deal.
At this point, Accenture likely would be a reluctant bridegroom. This could change if the world economy slumps back into recession. As recently as 2009, Accenture’s market capitalization fell to $20-billion, compared to today’s $37-billion. Even at a 25% premium over this low, HP would be able to justify an Accenture acquisition to Wall St.
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