Cap Gemini Takes Aim At The WorldJonathan B. Levine
Last summer, Chairman Serge Kampf saw three paths for Cap Gemini Sogeti, Europe's top computer-services company. He told 550 managers, gathered in Marrakesh, that they could either beef up Cap's core custom-software business, add new European services--or try to dominate the world. Even for Kampf, Cap's shrewd founder, the last option seemed audacious. But his managers opted overwhelmingly for it. Says Kampf: "They voted for the dream, or the nightmare, depending on how you look at it."
No doubt that Cap is ambitious. In five years, it has pumped $1.1 billion into 22 companies in Europe and the U. S., making it one of the most acquisitive computer-services companies on either continent. That helped quadruple revenues last year, to $1.7 billion. Yet, despite its 7% of the fragmented European market--about twice that of its nearest rival, Italy's Finsiel--it has less than 1% of the U. S. market and nothing in Asia.
To finance the global push, Kampf has sold 34% of Sogeti, Cap's privately held parent, to Daimler Benz for $575 million. If all goes well, the German powerhouse will take control in 1995--along with one or more U. S. and Japanese equity partners that Daimler and Cap plan to recruit. Then, Cap should be ready to challenge the big three in computer services--General Motors' Electronic Data Systems (EDS) unit, IBM, and Computer Sciences Corp.
CASH INFUSION. Kampf, 57, a private man who prefers his hometown of Grenoble to Cap's Paris offices, had carefully maintained control for 24 years. But to fund Cap's bigger ambitions, he says, "we could no longer keep reaching into our own pockets and keep control."
The Daimler deal may do for Cap what General Motors Corp. did for EDS, which the auto maker acquired from founder H. Ross Perot in 1984. GM remains EDS's biggest customer, and Cap will share the $700 million of annual revenues from Debis Systemhaus, Daimler's computer-services subsidiary. International Data Corp. figures Daimler's cash brings Cap's war chest to $700 million--enough to buy $1.5 billion more in annual revenues.
Most of that new firepower is to be aimed at the U. S. market. "Getting even 1% more market share in the States is more important than anything else we could do in Europe," says Michel Berty, Cap's secretary general. Kampf wants to build up Cap's weak U. S. business in systems integration--designing and building complete systems--sell data processing services, run networks, and even sell packaged software for specific industries. One early move may be to find a U. S. partner, perhaps a telephone company, to manage networks using Debis' expertise with Daimler's own huge German network.
Daimler's money will also help Cap in Europe, where U. S. companies are pushing hard. EDS recently entered into a deal to acquire SD-Scicon, a British computer-services company. IBM, meanwhile, is spending wads to tie up national software specialists on the Continent. "The pressure in Europe is on Cap," says Jurgen Berg, head of EDS in Europe.
Cap already has bolstered its arsenal and extended its reach by buying a German systems-integration company and Hoskyns, Britain's biggest computer-services company, for a total of $385 million. Hoskyns' specialty is outsourcing, or running a customer's entire data processing department, a business that is growing at 25% a year--nearly twice as fast as other computer services. Expanding Hoskyns' skills across Europe and into the U. S. could help fend off EDS, the leader in outsourcing.
Kampf also has tried to seize the higher ground of management consulting. He has bought three firms, including U. S.-based United Research and MAC Group, to create Gemini Consulting. Strategic consulting deals should give Cap the inside track on follow-on systems-integration contracts, Kampf figures. He saw proof of that when Andersen Consulting snatched a contract from Cap to build a funds-transfer system at the Paris Stock Exchange after Andersen consulted for the French Treasury Ministry. Similarly, a United Research contract with Mobil Oil Corp. in the U. S. has now led to Cap's working on Mobil's European distribution network.
DICEY MARGINS. Cap's acquisitions and the sluggish world economy are taking their toll. High financing costs cut its net margin to 6.8% last year, from 7.4% in 1989. And, excluding acquisitions, first-quarter revenue growth slowed to 5%. That, analysts say, could force margins still lower--a prospect that sent Cap's stock crashing in May by about 23%, to $52. Only the Daimler deal has pulled it back to about $59.
The question is whether Cap can regain its usual 15% internal growth rate. Stiffer competition may have permanently slowed it. If so, Daimler's backing will be all the more critical to reach the goals set in Marrakesh.
THE CAP GEMINI EMPIRE 1990 revenues Millions of dollars CAP GEMINI SOGETI Systems integration $680 Programming/training 680 Technical consulting 170 Facilities management 170 GEMINI CONSULTING Management/ technical consulting 230 DATA: COMPANY REPORTS