SingTel will strengthen its foothold in Singapore's IT services market with a controlling stake in Singapore Computer Systems (SCS), but it remains to be seen if SCS can lend weight to the telco's regional expansion plans.
In a statement issued Monday, SingTel announced that Computer Systems Holdings (CSH) had acquired a 60 per cent stake in SCS from Green Dot Capital for about S$140 million, or S$1.50 per share. CSH is a subsidiary of NCS, which is owned by SingTel.
Lim Eng, CEO of NCS said in the statement: "This [transaction] accelerates the overseas expansion plans of NCS by providing operational scale and an enlarged regional footprint. The IT services market is a high growth area and the potential for growth is enormous."
With the transaction, CSH is also making a "mandatory general offer" for the remaining shares of SCS at S$1.50 per share. The offer documentation is expected to go out to shareholders between 14 days and by 21 days from today, according to a document detailing the announcement.
Eugene Wee, IDC's research manager for IT services in the Asia-Pacific region, said in an e-mail interview that should NCS, through CSH, acquire the remaining SCS shares, the new entity will result in Singapore's largest IT services player, boasting increased scale and scope.
According to IDC figures, NCS commanded a 10.3 per cent share of the IT services market in Singapore in the second half of 2007, while SCS held 2.4 per cent. Their combined share of 12.7 per cent exceeds the 12.1 per cent held by top player IBM Global Services during the same period.
Wee said in an e-mail interview: "Moving forward, with SCS cementing a win in cooperation with outsourcer EDS for the Singapore Government's Standard Operating Environment (SOEasy) project, the new organisation will not only be a force in Singapore, but can potentially leverage its know how for greater geographic expansion throughout the Asia-Pacific region."
"While NCS has been a key systems integrator and provider of managed services in Singapore, SCS also brings increased vertical depth with their portfolio of 'trusted services' which encompass specialist e-government and healthcare services," he added.
According to figures released in May by Singapore's Infocomm Development Authority, SCS and NCS were ranked second and third, respectively, for the total value of government contracts awarded in FY2007, which ended March 31, 2008. NCS had been the top IT services provider to the government for the preceding three financial years.
Boost to SingTel's IT services expansion?
The move is part of SingTel's strategy "to be a significant solutions provider to business customers in the Asia-Pacific region", its CEO Allen Lew said in the statement Monday.
IDC's Wee pointed out the deal propelled SingTel to "a much stronger strategic position in the near- to medium term", with an expanded portfolio of services and a wider installed base of IT services customers.
Gartner's research director for communications Foong King-Yew, however, pointed out that the acquisition will in the short term not have any significant impact on SingTel's IT services footprint in the region as "over 80 per cent of SCS' revenues are still derived from the Singapore market".
The move would strengthen SingTel's position in the local IT services market, but SCS would not be "adding any new and significant core competencies that NCS does not already possess", he added.
Foong said: "SingTel will have to demonstrate that it can operate SCS' business significantly better and grow the regional revenues significantly in order to justify the price premium it is paying for SCS."
In the immediate term, duplicate services could be eliminated to "extract cost savings", said Foong, adding that it would be necessary for SingTel "to consolidate the company's operations and human resources without unnecessary delay" to gain further synergies and benefits.
"Certainly, differences between the two organisations can be expected and these will have to be resolved carefully. This is also to ensure the smooth contribution to the SOE project," he noted.
Loy H. Chia, director at ANZ Singapore, which is conducting the offer on behalf of SingTel, said companies typically have between 28 and 60 days to respond to an offer after it has been issued.