Atos + Unify: the Next Wave in Market Restructuring?
The Atos/Unify combination will center on enabling digital transformation rather than on promoting specific products or services.
Two years ago in the post "Big Deals: The Year in Mergers, Acquisitions, and Consolidation," No Jitter Publisher Eric Krapf reflected on what he considered the most intriguing deals of the year: Mitel's Aastra acquisition and Oracle's Acme Packet and Tekelec purchases. He described the former as industry consolidation but the latter two as moves aimed at creating a new model of providing communications capabilities to enterprises.
Fast-forward to today, and "creating a new model of providing communications" certainly seems to be an apt description of Atos's goal in acquiring Unify. During the company's annual analyst summit that took place last week, Unify and Atos executives added new perspectives on the now-finalized combination.
Perhaps not so well-known to No Jitter readers, Atos is an approximately $13 billion European IT services corporation that provides consulting, managed services, and systems integration. The Unify purchase is not the only one that gives Atos, which is headquartered in Bezons, France, a growing presence in North America. In June 2015, it bought Xerox ITO, with 9,600 employees, for close to $1 billion. With that move, the U.S. became Atos's largest market. Its U.S. base could grow even larger, should Atos be successful in its reported bid to acquire Dell's Perot Systems, a move widely covered in the financial press.
As a global systems integration giant, Atos is adding a Unify business that over the years has seen more and more of its revenues come from services rather than products. As you can see below, hardware and software accounted for just 32% of Unify revenue in its fiscal year 2015 (as a point of comparison, Avaya posted product revenues of 49.7% for FY15, while Mitel product revenues hit 61.8% through the first three quarters of 2015). The graphic, which Atos used in its third-quarter 2015 financial analyst presentation and shared with industry analysts last week, offers a closer look at Unify financials than has been available since The Gores Group took the company private in 2008.
Atos will divide Unify into two parts. The managed services piece of the pie (40% in FY15) will move into Atos's now $6.3 billion managed services business. Atos has around 300 customers worldwide, two-thirds of which are also Unify customers. The Unify direct sales employees will merge into the Atos account-specific sales teams.
The Unify platforms, software, maintenance and installation elements (60%, or around $866 million) will fall under a newly established Unify Software and Platforms business unit, with its own CEO (undisclosed at the moment), and channel sales efforts. The marketing and finance functions will report into Atos but have matrixed responsibility to the Unify executive team. At least for now, Unify CEO Dean Douglas reports that the Unify branding will remain the same -- employees will not even require new business cards.
The product house will see "no change," reported Unify CTO Stefan Reid. His team will continue creating products for both the direct and indirect sales teams, following previously announced roadmaps, he said.
The Unify business has a clear remit from Atos, said Jon Pritchard, executive vice president of worldwide channels at Unify. That is: "Job 1 is to protect the business we have." Beyond that, the channel may have an opportunity to sell some of the cybersecurity products Atos gained in the 2014 acquisition of Bull, a French company that provided global cloud, cybersecurity, and big-data solutions.
Until now, consolidation of the enterprise communications market has taken two directions: scale consolidations like Mitel/Aastra, and private equity ownership such as in the case of Avaya/Nortel and Alcatel-Lucent Enterprise. Atos/Unify is a categorically different type of combination -- one that centers on enabling digital transformation rather than on specific products or services offerings. If successful, the market in five years could have far fewer product companies and far more systems integrators with solid expertise in communications and collaboration.