Global CIO: Accenture Should Start Buying—Here's A Shopping List
Where is it written that IT services companies have to sit back and wait to be acquired by IT product companies? Accenture has the power to reverse that trend and offer new value to CIOs.
Accenture's name has been bandied about this week as one of several potential IT-services takeover targets in the wake of the recent Dell-Perot and Xerox-ACS deals. But while the inclusion of Accenture in these roundups of the usual suspects is predictable, it's also downright foolish because Accenture is as much like those other acquisition targets as Tiger Woods is like Sergio Garcia: they may both be very fine professionals, but one has skills, capabilities, and proven performance that are simply vastly superior to the other's.
I say it's time Accenture became the hunter, rather than letting itself be herded among the hunted.
The trap we have set for ourselves by following conventional wisdom is this: IT hardware and software vendors are finding that CIO customers aren't buying as much IT stuff as they used to, so the vendors must move up the value chain into services. Ergo, IBM bought PriceWaterhouseCoopers, HP bought EDS, and in recent days Dell has bid for Perot and Xerox for ACS.
And so we think that as night follows day, IT product companies must buy services companies—and I'm sure some more of that will happen, and should happen. But where is it written that, if the desired outcome is IT products + IT services, that a world-class IT services company can't start buying up the vendors that make IT products?
The chief factor would be purchasing power and leverage—well, Accenture's got plenty of both: a recent Barron's article predicted that Accenture shares could double in three years. And going in the other direction, most potential buyers would find Accenture, with its annual revenue of about $24 billion and its current market cap of about $28 billion, about as tasty-looking and tempting as an alpha-male porcupine.
Some quick comparisons:
--Dell paid 1.5x revenue for Perot Systems. With Accenture's revenue of about $24 billion, that would come to a price tag of $36 billion. Plus, that's based on valuing Accenture the same way one would value Perot, which simply will not happen. Perot is a fine company and will be a huge asset for Dell, but it is not in the same league as Accenture—and almost no one is.
--Dell is bidding a premium of about 67% for Perot's shares. An equivalent premium on top of Accenture's $28 billion market cap would push the purchase price up close to $46 billion.
--Xerox is offering a 34% premium for ACS shares—at that level of sweetener, Accenture would go for about $37 billion, assuming it would value itself as ACS values itself. But, as is the case with Dell and Perot, that simply does not reflect reality.
--Accenture has nine times the revenue of Perot and about 3.5 times the revenue of ACS, and it operates on a very different level in the engagements it wins, the connections it has, the brand equity it holds, and the market impact it creates.
Accenture is a premium global brand, and I think it's time Accenture presented a very different model to the global business community that is lulled into thinking that the food chain in the IT business always has the product vendors holding the knife and fork, and services companies always lying nervously on the plate. After all, Accenture didn't get to be Accenture by doing the same things the same way as everybody else does them.
So I've put together a little shopping list for Accenture to help it step comfortably into its new role as Hunter instead of the hunted. The companies below make this list not because they need to be acquired; quite the opposite. They've made this list because they're doing powerful and unique things for clients and are stepping into vital new areas that defy the constipated three-letter-acroynm universe pushed relentlessly by IT consultancy firms that not so coincidentally happen to offer subscription services built around three-letter-acronym categories, whether or not those slices still reflect reality.
And besides, if I'm going to recommend that Accenture start The Next Big Thing, it wouldn't be fair to recommend that it pair up with a bunch of also-rans, would it? So no, the companies on this list are dynamic and strong ones that could, in combination with the new Accenture as Hunter, revitalize and energize this business and give CIOs a new sense of the enhanced value that customer-focused IT partners can deliver.
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