Atos Origin has reported Q1 revenues €1.424b, marginally down on Q1 last year . This was mainly due to the disposal of its Italian operations in Jan 08 and AEMS Exchange due to be sold in Sept. On a continuing basis organic growth was 5.3%on an organic basis.

Atos Origin reiterated its full year guidance, which calls for organic sales growth of 4%; an improvement in operating margin to 5.6% compared to 4.6% in 2007; and a net debt reduction of €100m.

Atos Origin has a market valuation of €2.68b – a PSR of c0.5. Atos share price is down around 30% on a year back.

Atos Origin UK

I had the opportunity to talk to Keith Wilman, who runs Atos Origin UK, earlier this morning. Atos Origin UK reported an underlying growth of 8.25% to £178.3m in Q1 2008 (5.5% if you include discontinued activities) Putting this into context, I reckon that Atos Origin’s UK revenues declined from £696m in FY2006 to c£675m in FY2007. Although they will grow by c8% in H1 FY2008, that will slow in H2. So I’d reckon on full year revenues up c5% to just over £700m. Note – all these figures and comments exclude the medical BPO business in the UK.

Atos Origin UK has c4000 employees (excluding medical BPO) of which c20% or 800 are offshore; mainly in their Mumbia centre with a helpdesk facility in KL. They aim to grow to nearer 30%. Given that they are excluded from using offshore staff on their big Homeland Security contract, that is fairly respectable.

I was most interested in getting Wilman’s views on the outlook for the market. Q1 Book-to-Bill was 108% - always encouraging when bookings exceed billings! It’s widely spread too – coming from over 400 separate customer orders.

But the picture is pretty similar to that we have heard from others:-

Business is coming from what others refer to as 'customer mining’ – in other words getting more revenue from existing customers for add-ons etc. He was particularly pleased with the new work they had done with ‘old customer’ National Express for their internet ticketing system. It’s the new business with ROI exceeding a year that is facing the greatest difficulty. In Financial Services, Wilman is encouraged by the number of financial institutions who were now at least investigating outsourcing – a taboo area previously for many. Their SAP operations – again mainly in the “add-ons for existing customers” area - is also ‘going from strength to strength’.

All-in-all, I got the feeling of a ‘steady as she goes’ and ‘well run ship’ at Atos Origin UK.

Activist interest in Atos Origin

Atos Origin’s trading performance sometimes seems a sideshow to the main entertainment – the battle for control. Two activist funds – Centaurus Capital and Pardus Capital – have built a 22.3% share in Atos and want to appoint their own directors to the board at a shareholders meeting on 22nd May. The activists are unhappy about the pace of change at Atos. It doesn’t look like the activists want to take control. What they want is to shake up the management so that Atos can be sold at a premium resulting in them making a killing after buying their share without paying the premium required for a full scale bid. Atos management are somewhat against this as you might imagine.

The activists have been going through a series of possible candidates to become ‘independent’ directors at Atos Origin – suggestions had seriously included Bernard Bourigeaud; the previous CEO who only stood down last year! They seem now to be prepared to back Jean-Francois Cirelli (CEO of Gaz de France) and Rene Abate (Boston Consulting) – candidates put forward by Atos Origin itself. However, ‘peace has not broken out’ as the activists want to remove Atos’ three existing ‘independent’ directors as well as Chairman Didier Cherpitel. This battle royal has been front page news in France and has an unsettling effect on customers and staff alike.

The sooner the “Who will own and control Atos Origin?” question is answered, the better.

SAP shares have dived this morning after announcing weak Q1 sales. See Reuters report for the full details.

US results - where revenues actually declined - were particularly disappointing. All this is in line with the trends I have been banging on about constantly. The area which is really suffering at the moment (and will continue to do so) is the installation of new systems where the ROI takes in excess of a year to be achieved. Most new SAP installations fall into that category. 'Add-ons' to existing installations should hold up well, however.

Significantly, SAP is scaling back its SaaS Business Bydesign software aimed at the SME market. SAP is one of many software companies who, having made their name and fortune in enterprise software for large corporations, believed that moving down into the SME market was both simple and theirs by right. It ain't! Here they face a whole new raft of competitors like Sage and Microsoft who have very different sales and revenue models.

Coming hot on the heels of lack-lustre results from Oracle, SAP's Q1 results and outlook will not help an already jittery tech market - even though the reasons can easily be explained (as I have attempted above and on many other previous occasions!) and apply only to specific areas and companies. Ie 'tarring all tech with a SAP brush' is plainly silly.

I’ve had a long association with Sopra – having a hand in two of the their acquisitions (Mentor and Newell & Budge) that form the bedrock of their UK operations.

Sopra’s Q1 results were pretty encouraging with organic growth of 10.6% - taking revenues to €268.7m. Good results seem to have been achieved across the board with Consulting (Orga Consultants) up 9.3% at €11.8m, SSI France up 11.9% at €166.8m, SSI Europe up 6% at €56.2 and Axway up 12.3% at €339m. SSI Europe includes Sopra’s UK operations which grew by an impressive 8.2%.

Outlook is equally good with a “at least equivalent growth in Q2” and “organic growth higher than the market for 2008 as a whole”. Sopra, with revenues in excess of €1b and over 11,000 staff is a pretty conventional consulting, IT services and SI outfit. Axway is their ‘products’ operation. It has managed to stay ‘independent’ – quoted on the Paris Stock Exchange where it has a current market value of €590m – a PSR of c0.6. Despite a pretty impressive performance, Sopra is a member of Holway’s 50% club where its shares are currently 50% or lower from its 2007 high.

Sopra would make a catch for any global company wanting a decent footprint in Europe and France in particular.

UK-based Axiom Systems has been acquired by Comptel, headquartered in Finland. Both companies are telcom software vendors, focusing on automating fulfilment processes for telecoms service providers. The purchase price was £7m in cash, with an additional sum of between £4-16m in cash and shares if Axiom's 2008 sales exceed expectations.
This is the second acquisition of a UK-based operational support systems vendor this month (the first being Jacobs Rimell, just acquired by Amdocs).

I was alerted to this by one of the last Ovum's Hotviews...

Anyone who thought that the high level of tech M&A amongst the quoted (main and AIM) tech stocks that we saw in Q1 was a ‘one off’ and largely inspired by the changes in CGT, which took effect from 6th Apr 08, might need to think again. The M&A train has kept steaming in Q2.

The latest is IBS who announced that it has received approaches, which were at an early stage, from third parties which may or may not lead to an offer.

IBS provides products and services to the UK local government and social housing sectors with four main product sets: OpenHousing, OpenFinancials, OpenRevenues and OpenContractor.

Until 2007, IBS had performed strongly with double-digit growth and good positive cashflow.. This was reflected in the share price. However, in Jan 08, IBS put out what was effectively a profits warning which caused the share price to slump from 165p to 111p. Indeed, IBS had hit 200p in July 07 so they were close to joining Holway’s infamous 50% Club.

Latest results show PBT up 6% at £7.6m on revenues also up 6% at £19.8m; generating £6.3m operating cash to achieve £12.7m in nett cash at the 31st Dec 07 year end.. IBS warned of a ‘tightening’ in the local government marketplace and had experienced “some slowing in Q4”.

As a result of the bid announcement, IBS shares rose to 158p – close to where they stood before the profits warning.

IBS comes hot on the heels of:

• Mediasurface (see my piece Mediasurface soars on bid approach)
• Sci Entertainment (the Lara Croft people) bid approach revealed today as from Infogames
• Netstore had already said that "early stage discussions are continuing with third parties which may or may not lead to an offer ". Their share price rose 10% yesterday so maybe details are imminent.
• Clinphone getting a bid approach from Parexel
• Avnet’s €101m bid for Horizon (hardware distribution)
• Bid discussions at nCipher (see my piece nCipher receives bid approach
• Angle (quoted tech investor (see my piece Angle gets another offer)
  

Then, of course, there was Microgen’s bid approach to Scisys which was rejected. Microgen yesterday notified Scisys that it is not intending to revise its proposal and confirmed that it has no present intention of making an offer. This means that it cannot make another bid for six months (unless certain conditions apply). Microgen shares shot up by 11% to 51p on the news - perhaps on relief that this rather illogical coupling would not now proceed. Microgen, of course, could also make a profit on the shares it bought.Microgen bought 3.2m Scisys shares at 32p each on 3 April and almost half a million more the following week at 36.5p, taking its stake to 3.67m shares, or nearly 13% of the company. Microgen would be showing a paper profit of c£325K on yesterday’s SciSys closing price of 41.5p.

So NINE UK IT bids in four weeks. Hardly a slowdown! Indeed, I think that current market conditions will boost consolidation with the small to mid-sized quoted sector being particularly vulnerable (or lucky, depending on your viewpoint!)

In the last week or so I have had many conversations about the effects of the current financial circumstances on SITS stocks. Some companies are doing even better because of the environment (BPO players like Xchanging and software companies like Autonomy who can help with compliance issues). But those involved in new enterprise projects, with more than a year ROI, are starting to suffer. But nowhere does the feedback seem more conflicting than in the IT recruitment sector.

George O’Connor (Panmore Gordon) quoted one company saying “there is no clarity from our customers yet”. George’s view (quoted with permission) is as follows:

The IT industry should pull through this year. There is much to come from follow-on implementation projects that started before H2 2007, development of new/green data centres, new interest in HR systems as a consequence of changing demographics, and the new era of “Internet Computing and Data in the Cloud” (Web 2.0 meets the commercial enterprise). The difficult time for operating results will be next year.

The latest news from India is that IT recruitment is slowing; smaller IT companies are expected to see a drop of 30–60% in recruitment this year as locals say that there is a definite slowdown in hiring. Positively, for the short term, it does suggest that the immediate impact – improved utilisation, smaller pay hikes and less churn on billable heads – gives potential upside to margin forecasts for the offshore brigade. The poorer news is likely in the longer term (ie the subsequent quarter) as revenue falls because the pipeline starts to empty.

Back in the UK, the CBI/ Pricewaterhouse Coopers financial services survey concluded that IT spending in the year ahead would be “flat”. For UK IT recruitment, we are not surprised to learn that the number of IT contractors going without work for at least 12 weeks rose for the first time to its highest level for three years.

Figures from Giant group show that ‘long-term joblessness’ among IT contractors rose this month to 5.5%, up from a 2-year low of 4.4% in 2007. Giant also said that the number of contractors ‘sitting on the bench’ remained “very low”, at a time when skill shortages continue to pressure associated pay rates upward. That said, in uncertain times freelance/contractor staff typically move to more secure permanent, albeit lower-paid, roles. However, the current trend appears to be that IT folks are moving to freelance jobs. The implication is that the number of full-time roles has already diminished as companies have been quick to cut headcount requirements.

Jobs agency Robert Walters has already said that permanent IT hires face a downturn in 2008. Recruiters say that financial institutions are taking stock of their IT headcount and are being more cautious about hiring, which recruiters describe as “a trend not too dissimilar to five or six years ago” – we admit that in our conversations our general impression is that companies are ‘leaner’ than they were back then. Fears of layoffs and an attitude of ‘keeping options open’ are reportedly making candidates settle for contract work.

A lack of clarity?

I think the situation is getting clearer. The marketplace is tightening but this is not showing through in current trading or performance that much. The ‘super tanker’ effect will keep results positive for at least this and the next quarter. But the outlook – particularly for 2009 – is worsening.

A strange quiet has descended on the Microsoft -Yahoo bid situation. As readers know I have urged Microsoft not to do this deal right from the start. I thought I was a lone voice but I now see a chorus of commentators with similar views. Of course, advising someone not to do something and them actually taking note are two very different things. Indeed, the vast majority of commentators still believe the deal will get consummated - at what price and when are the issues.

However, not only do I think it shouldn't be done but I'm now of the increasing view that Ballmer might well just walk away. In that case Yahoo share price will plummet. Maybe they will then beg Microsoft to come back!

Mediasurface last night issued a statement saying "The Company notes the recent share price and announces that it has received apreliminary approach, which may or may not lead to an offer for the Company.The approach has been received from a UK company that does not compete directlywith Mediasurface". This morning Mediasurface shares have shot up by c50% to c10p.

I have always really liked Mediasurface which develops and markets content management software. So much so that Elderstreet (where I am an 'advisor') became an investor in 2000 via their Elderstreet Capital Partners fund. As I am an investor in that fund, I am indirectly an investor in Mediasurface too.

Our hopes for Mediasurface rose and rose as they successfully completed their AIM IPO in Aug 2004. In July 2007 they acquired Immediacy which also looks a very good deal and complements their offerings intop mid-sized companies. Less good was the launch of Pepperio - a version of Mediasurface's Morello product for SMEs. Losses here contributed to a EBITDA loss of £1.3m on revenues of £11.6m in the year to 30th Sept 07. This put the shares into freefall - falling from c20p to c4p. In Feb 08, Mediasurface raised £750K.

I await further news of the bid with more personal interest than usual!

Despite the hype in some articles - see "Microsoft 2009 outlook rosy" from AP - I thought Microsoft's Q1 results fully justified the 5% fall in their share price in after hours trading. Microsoft profits fell 11% to $4.39b on flat revenues of $14.45b. Indeed, Microsoft did not split out the results in constant currency. If they had I'm pretty sure we would have seen a revenue decline. It was Microsoft's Windows division 'whot done it for them' with revenues down 24% at $4.02b. I still have considerable doubts over Vista which is just not getting the corporate takeup expected. When forced to when purchasing new PCs, customers buy the Vista licences but run XP. Ballmer has hinted that XP's life might be extended. Some customers might bypass Vista all together.

Interestingly Microsoft queried the strong PC sales figures from IDC recently (12% increase in volume in Q1) - saying that their own calculations showed fewer PCs shipped than expected.

Sales in the Office division were also down 2%. This was offset by a 68% revenue rise in the XBox division and an 18% increase in the Server division.

I was also interested in the comments made by Microsoft's CFO Chris Liddell on the Yahoo bid saying "Unless we make progress with Yahoo towards an agreement by this weekend, we will reconsider our alternatives. These alternatives clearly include taking an offer to Yahoo shareholders or to withdraw our proposal and focus on other opportunities". That second option is entirely in line with my 'advice' to Microsoft right from the start...ie "Don't do it".

Further to my recent pieces about EDS and CSC weathering the storm well because of their long term contracts and emphasis on core systems, Accenture's CEO Bill Green has added to that list saying "We have not had any cancellations of anything and we have not had any deferrals." See Reuters story.

Green also said that Accenture expects its staff numbers in India to rise by about a third over the next 12 months to c50,000. Indeed globally, Accenture would hire about 60,000 people in its financial year ending August 2008, with net staffing increasing by about 40,000 from 178,000.

So Accenture is clearly in the "Slowdown? What slowdown?" camp.

You can view EDS Q1 results in a number of contrasting ways:

POOR - splitting out both currency fluctuations and acquisitions, revenues decreased by 2% (to $5.37b). Net income in Q1 reduced from $165m to $63m as Q1 07 had included an exceptional £100m from the Verizon contract termination. The exceeded previous guidance and concensus analyst expectations.

GOOD – revenues from EMEA increased by a slightly better than average market growth 6% to $1.73b. Bill Thomas, who heads EDS EMEA, must be pretty pleased with this performance when compared with a 9% decline in revenues from EDS America (to $2.45b) However EMEA profits fell 7% to $182m – “impacted by price adjustments and investments”

EXCELLENT – EDS signed $5.6b in new contracts in Q1 08 – up 66% on Q1 07. This not only included the Shell (see HotViews 31st March 08) and Singapore megadeals (ie a megadeal is worth more than $1b) but a further 10 deals worth in excess of $100m.

EDS has maintained its guidance for FY08 – which in the circumstances is pretty good.

EDS also reported another 2000 offshore (what EDS calls Bestshore) employees in Q1 taking the total to 43,000. They aim for 49,000 by end of 2008 and 60,000 over ‘next 2-3 years’.

ITO (55%) and BPO (15%) make up the lion’s share of EDS’ revenue. So EDS has a large percentage of its revenues from contracted revenues stretching years into the future. Also it supports client’s core systems – systems which have to be maintained come what may. It may be ‘Boring’ but this is what makes companies like EDS and CSC such good ‘havens in the storm’.

Footnote - EDS shares closed Thursday up 8% at $19.91.

As I write at midday 24th Apr 08, Autonomy is suffering a pretty massive 11% decline to 881p - writing some £230m off its market value. This on a day when they announced Q1 results showing revenues up 61% to $105.1 Although this included Zantaz (July 07) and Medio (Oct 07) ) organic revenue growth was a pretty impressive. PBT increased 47% to $23.6m. For more information on Autonomy's Q1 results see Thomson Financial or see George O'Connor (Panmure Gordon) note .

The reason for the price fall is that Autonomy trades on such a high forward valuation that nothing short of the promise over ever-increasing stellar performance will do. All that CEO Mike Lynch seems to have done today is to retain his conservative view of the future but added "we will review that if, as expected, current strength continues". In other words, he didn't 'warn' about future earnings; just decided not to hype them up anymore - which seems pretty sensible to me!

Ian Spence added in www.megabuyte.com this morning "Autonomy's one key weakness is its visibility. Whilst trading currently looks to be strong, because of Autonomy's dependence on licence fees, any weakness in revenues would come with little warning and have a significant impact on profits. Furthermore, on 35x 2008 earnings, the shares would clearly be hit very hard by any such weakness. "

My original Caring about our young people post received a lot over favourable feedback. I am, of course, pleased that HM Govt has decided to do a U-turn and accept that young people earning less than £18,500 who have the metal to hold down a full time job, should not be penalised by the abolition of the 10% tax rate band.

But how did we ever get to this situation?

It seems to me that, time-and-time again, we get measures introduced with no regard to the consequences. I thought we had (ie we the tax payers paid for) huge resources and systems at The Treasury and elsewhere in Government, whose sole job it was to make sure Ministers knew about the consequences of their proposed actions.

CGT, non-doms, 10% tax rate, Northern Rock…I am getting more disillusioned by the day.

The Department of Health has invited applications for a chief information officer (CIO) for health as well as a director of IT programme and system delivery, with salaries of c£200,000. The late departed previous head - Richard Granger - earned c£285,000 a year .

As the Times says "Combined, the two jobs are equivalent to Mr Granger’s former position, on increased wages, which critics at the time labelled an “abuse of taxpayers’ money”.

Perhaps Granger should re-apply?

For more see article Health IT is too big for one boss from The Times 24th Apr 08

I wasn’t able to get to Andy Green’s presentation of the results of Logica’s Business Review earlier today due to a clash of engagements.

I reported the basic messages in my earlier post (to reread Click here) For those interested in the full Powerpoint you can download it and view the webcast Click here.

The reaction to the review has not been very favourable and Logica shares ended the day down 3% at 111p.

The main criticisms of the review were as follows:

- the review was not radical enough
- the new targets set were ‘undemanding’
- execution risks were high. The ‘challenges’ ahead had been under estimated but the returns over estimated.
- too benign a view was taken of the outlook for IT services in Europe. Ie Logica’s assumed IT services market growth rates are too high given current market unease
- competition, particularly from the offshore players themselves, had been under estimated. Indeed, that Green failed to understand where its competition really came from.
- even more should be done to boost Logica’s offshore capabilities
- Logica’s strengths had been ‘over puffed’
- Logica risked the departure of its best people before the incentive plan could be implemented

Holway’s view?

Anyone viewing the Powerpoint slides of Green’s presentation would be impressed. But as I waded my way though I had a growing feeling of “So what?”. Almost every measure proposed was pretty much what the competition was doing already – indeed had implemented yonks ago.

Logica’s problem is that they are Logica. They are a mid-sized player doing lots of different things in lots of vertical areas in lots of countries in Europe. They are a ‘mid-sized generalist’. For many years they have been a ‘mid-sized generalist’ and if Green’s plan is followed they will continue to be a ‘mid-sized generalist’.

If you have read Holway’s views over the last 20 years you will know that being a ‘mid-sized generalist’ is an increasingly uncomfortable place to be.

There are only two ways out of being a ‘mid-sized generalist’;

1 – You get BIG. Logica has used up all its acquisition cards. It is quite impossible for it to get Big by buying any of the other European ‘mid-sized generalists’. So the only route to get Big is for someone to buy Logica.

As I worked my way through the presentation, there was a slide (14) which showed Logica’s main competitors in each country. In the UK the Top Four were shown as BT, EDS, Capita and IBM. This is quite different from the rankings I have produced over so many years. Using the old established Holway metrics, Ovum puts the UK Top Four as EDS, IBM, Fujitsu and Capgemini – with BT #6. What concerns me is that Green doesn’t seem to have learned how different the BT “IT services” definition is to that applied at, for example, EDS. I would suspect that throughout Europe, Logica’s real competition for global IT services accounts comes from the core global IT services players – IBM, Accenture, EDS and CSC…and possibly Capgemini. I do not believe that Logica can realistically aspire to play in that league.

I believed – indeed said quite publicly – that Green’s sole task in joining Logica was to prepare it for a sale within (say) two years. I would put even greater odds on that now after Green’s review. If Green can get a bid at approaching 200p by end 2010, then I’d say he had met the objective.
The problem is that to get there he has to execute well and the market has to be on his side. The execution risks – ie avoiding a series of profits warnings – is great and I am increasingly of the view that, although 2008 might well be benign for IT services, the real problems will be felt in 2009.

2 – You get NICHE. Green missed that opportunity. See ‘generalist’ comments above. Green could have majored on becoming the market leader in a few key industry sectors. Indeed, he could have used this as a reason to dispose of some of Logica’s assets – raising much needed cash in the process. Green ruled out divestments. Indeed, Green seems to be planning to extend Logica’s ‘generalist’ offerings into such areas as BPO.

I do wish both Logica and Green well but I do have a feeling of “too little too late”. Of continued missed opportunities and the inevitable outcome of Logica ceasing to be sole remaining UK-HQed IT services standard bearer.

Andy Green announced the results of his Business Review of Logica this morning. You can read the full Logica Press Release.

I will report my views on the Business Review tomorrow once I have had time to digest them and hear what Andy says at the analyst briefing this morning. However, the two analyst reports I have read to date (ie at 8.30am) both conclude that the plan is not radical enough and should have gone much further. So far Logica shares are downn 2% 112p (8.30am)

The following are highlights of the plan 'cut and pasted' from the Logica announcement:

- Focus for growth: increased investment to enhance sales and marketing operations, consulting capability, and to focus on creating innovative propositions in selected high growth areas for European customers

- Accelerate blended delivery: driving the model that blends offshore and local resources, to more than double offshore and nearshore headcount to 8,000 by the end of 2009

- One Logica: a programme to put in place the right organisation, processes and incentives to ensure a deeper integration of the group

- Competitive costs: a significant reduction in costs resulting from streamlining the organisation, rationalising property and a reduction of approximately 3% of overall headcount (primarily driven by a 15% reduction in non-billable headcount) Logica will make around 1,300 redundancies. The majority is expected to be related to a reduction of around 15% of Logica’s non-billable staff. In the UK, it is anticipated that this programme could impact approximately 500 employees; this will include the impact of reductions in UK-based corporate functions
In mainland Europe, where growth has been strong, around 2% of the employees are expected to be affected.

The plan is designed to deliver above-market growth, funded by a £110 million restructuring programme that will deliver increasing cost savings reaching an annualised amount of approximately £80 million from 2010

In addition to confirming 2008 guidance, new targets have been set for revenue growth and margin improvement in 2009 and 2010

- 2008 revenue growth of around 3% at constant currency

- Revenue growth above the market from the end of 2008, with outsourcing revenue the fastest growing area

- 2008 adjusted operating margin (“margin”) similar to the underlying 7.6% achieved in 2007

- c.0.5% increase in margin in 2009, with a further 0.5% to 1.0% increase in 2010.

- Over the medium term, Logica expects the plan to deliver sustainable double-digit margins.

Further to my posts yesterday concerning Regent's Review of European Tech M&A in Q1, PwC have issued their global tech M&A review. See FT 21st Apr 08.

PwC brand 2007 " a vintage year for tech deals with transaction value up 44% at Euro127b" Although they expect 2008 to be lower, they forecast tech M&A will still be valued at upwards of Euro100b. PwC say "the demise of the private equity deal has been overstated". Indeed, I note that Civica's £180m 3i-backed MBO has received 95% acceptances yesterday. Also the recently launched bid by PE house Nordic Capital for TietoEnator would add Euro1.1b to the 2008 tally.

As most readers know, I am a non executive director of Regent - the tech M&A specialists. Regent has been compiling statistics on tech M&A deals in Europe for 15 years and therefore their knowledge of the trends in the sector is unrivalled. Indeed I have been reporting Regent's statistics for almost as long!

I therefore have great pleasure in providing HotViews readers below with a Preview of Regent's Analysis of European Technology Acquisitions in Q1 2008.

The results are interesting as they show for the first time how the "credit crunch" is affecting tech M&A. Mega deals - be they trade or private equity backed - are more difficult to execute. As indeed are IPOs. But smaller deals have been largely unaffected however they were funded. Changes to CGT rules in the UK have had a minor impact on the number of smaller companies selling up - but the effect on the European scene is almost insignificant.

Valuations seem to be holding up quite well but are still below the mid 2007 peak. Consolidation in the software and distribution areas continues apace. The most interesting finding is that the previous hottest area - Media and Content - is cooling.

The last few weeks has seen a significant recovery in tech stock indices - FTSE IT Index is up 6% this month and NASDAQ is up 5%. The outlook statements from the big players look pretty robust. Indeed these public statements have been supported by the private conversations I have had recently. I am not suggesting that we are on the cusp of a major boom but I suspect that 'steady as she goes' will be the watchword for the time being. I think that will translate into both volumes and valuations remaining steady for the rest of 2008.

When I spoke to Peter Rowell, Exec. Chairman of Regent, last night about this piece he commented “It is interesting to note that the story we read and hear in the news every day is about the lack of liquidity in the markets. Bizarrely, it is the abundance of cash within the technology industry and the private equity community that continues to drive the high levels of acquisitions. Reductions in end-user expenditure could cause the industry to batten down the hatches to fight any recessionary storm – but there are no signs of that just yet.”

Please feel free to forward this analysis to any of your contacts who would find it of interest or tell them to look on http://www.holwayshotviews.com/.

Acquisitions

Considering some of the threatening economic factors that exist in the world markets, acquisition activity in the first quarter of 2008 held up well and maintained the same level that has been seen for almost three years. There were 787 acquisitions involving European technology companies in Q1 2008, a decline of just 2% from the 799 deals announced in the final quarter of 2007. However the combined value of these acquisitions has fallen dramatically to $45b, almost half of the $86b recorded in the previous quarter. This indicates that whilst recessionary fears and the shortage of suitable credit has had little effect on the smaller deals, it is clearly impacting larger transactions – those valued at more than $100m. Our prediction is that for the remainder of 2008 deal flow will continue at healthy levels, perhaps with some tailing off as the year progresses.

Country Activity

After declining buyer activity for the past five quarters, the UK based companies showed an increase in purchasing levels in Q1 2008. Some of this was down to the availability of companies seeking to sell because of the impending Capital Gains Tax (CGT) changes being applied in early April 2008. Scandinavian companies showed a decline in transactions but maintained the number two position in Europe just ahead of North American buyers, whose deal-making increased by 7% in the quarter. The strongest increase in performance came from the Southern European buyers (Spain and Portugal up 55%, Italy up 12%) and the Eastern European buyers (up 14%). It is probable that this trend will continue throughout 2008 having more to do with economic cycles rather than the fortunes of the technology industry.

Industry Sector Activity

As the largest sector, the content and media sector saw its first significant fall in deal flow for over three years with 201 transactions in the past quarter compared to 245 in the final quarter of 2007. This activity has been driven by a high level of consolidation and there has been a feeling that increasing valuations in the sector has frightened off some potential acquirers. The software sector, together with product distribution, which have also been the focus of consolidation, both increased acquisition activity by 7% and 47% respectively. IT Services remains an important sector of the market representing 24% of all deals but it showed a decline of 5% in the quarter. Acquisition levels have been driven more by sector expansion than by consolidation as such. Buyers appear to be taking a breather as they wait for more certainty in economic trends.

Ownership Status

Active acquirers are finding rich pickings amongst private companies, many of whom, even if they were capable of undertaking an IPO, are finding acquisition valuations highly attractive. The supply of suitable private company targets limits the attractiveness of purchasing listed organisations even though public company valuations appear to be relatively low at present. Despite serious concerns that sub-prime problems and the resulting tightening of credit would mean that private equity investors would be less active, that appears not to be the case so far for deals other than the large (greater than $100m). Private Equity players have directly accounted for over 14% of all acquisitions in Q1 2008 and supported many other deals through their portfolio companies.

Valuations

Price to earnings (PE) ratios have remained reasonably consistent for the past few years. The Q1 2008 PE ratio was 17.36 compared to 17.45 a year earlier. This contrasts to the price to sales (PS) ratio which has displayed greater volatility starting the year on 1.34, exactly the same as a year earlier but below the peak of 1.51 in the middle of 2007. These shifts are not unexpected and reflect a return to normal valuation metrics following improvements in the profitability of the industry. Sharply increased profitability causes the PS to increase in the short term. These profit levels are now factored into the valuation multiples.

Note – The recorded valuations include 50% of the maximum contingent consideration in deals with earn-outs and apply to historic performance.

If you would like more details of this research contact Regent or call Peter Rowell on +44 1753 800700, PRowell@regent.co.uk or go to www.regent.com

Google's Q1 results significantly exceeded analyst forecasts with net profits up 30% at $1.31b and revenues up 42% at $5.19b (Wow, a 25% net profit margin!) Research and development was up 65% to $673m. Datacentre-related costs have roughly doubled over the same period. As a result Google shares soared by 17% in after hours trading. Google shares had been particularly badly hit this year - down 35% from $691 to $449 before the results. So the after hours rally could be better described as a 'recovery' as, even at c$525, Google is still well down this year.

See Google soars as it growth weathers slowdown in FT.com 18th Apr 08. Also Lex on Google's firepower.

This, coming in a week that has also seen positive results from IBM and Intel and some quite encouraging Q1 PC shipment figures from IDC, is really serving as a much needed fillip to the tech sector. Expect further gains (recovery...) in NASDAQ today.

Google's results also have a bearing on the Yahoo/Microsoft bid situation. It should embolden Yahoo to "repel the boarders". If the search advertising market is doing this well, then Microsoft could afford to raise its bid. More likely, Yahoo might get support from others to enable it to remain independent (albeit in a much altered form) - thus ensuring further gains are to the current shareholders benefit rather than Microsoft.

I’m delighted to welcome Richard Longdon and Aveva as the latest members of the Prince’s Trust Technology Leadership Group which I chair.

Aveva is now one of the largest engineering software companies in the world with revenues of £127m estimated for year to 31st March 08.

Excellent Review of Aveva in Financial Times of 17th Apr 08.

On the surface, IBM’s results for Q1, announced last night, looked extremely positive and gave another boost to the tech sector – coming a day after some good results from another tech bellwether – Intel. See IBM’s Q1 earnings jump 26%; company raises outlook from AP and Global sales give IBM earnings boost from Financial Times. As a result, IBM’s shares rose 4% to $125.4 to a six year high in after hours trading.

The 11% revenue rise and the 26% earnings jump do indeed look pretty good. Surprisingly, IBM’s US revenues rose by an impressive 6%. Trouble is that, elsewhere, much of it was due to the weak dollar. Stripping that out, revenue rose by just 4%. Indeed, revenues from EMEA were up just 4%, adjusting for currency. Software, at $4.8 billion, showed a 6% rise after adjusting for currency. Elsewhere the results were not impressive. Hardware sales fell 7%.

Again the results from Global Services (IBM’s largest business line) look good (“Rocking” as one analyst put it!). Revenues grew 9% to $14.6b with strong double-digit growth in all lines of businesses – I would estimate this growth to be well above average market growth; thus cementing IBM’s top position. Global Technology Services segment revenues increased 9% to $9.7 billion. Global Business Services segment revenues increased 9% to $4.9 billion. However, in a possible signal of worse times to come, services contracts signed were down 2% at $10.8 billion. IBM ended Q1 with an estimated services backlog, including Strategic Outsourcing, Business Transformation Outsourcing, Integrated Technology Services, Global Business Services and Maintenance, of $118 billion, an increase of less than 2% year over year.

All the indications coming to me right now are that IT Services - in particular ITO and BPO – if not ‘rocking’ and indeed fairing pretty well in these troubled times. The CEO of one of IBM Global Services very largest competitors in Europe told me earlier this week that they would report double-digit (that usually means ‘just’ 10%!) growth in the year to 31st March 08. Large companies do turn to outsourcing to save money in times of downturn which should bode well for many of the larger players. But they want payback FAST – “no more ROI in 2+ years, CEOs want it within the financial year” I was told.

That’s why the order book from IBM Global Services looks both perplexing and a bit worrying. I’d have expected an inline growth here to match the 9% historic revenue growth – but we got less than 2%.

The Financial Times today reports that Vodafone is pondering making a bid for Tiscali - all of it or just the UK bit. Vodafone already has broadband interests inTiscali's home country - Italy where it has bought Tele2.

See my Tiscali up For Sale post last Friday

Harvey Nash (the recruitment company) has reported revenues up 27% at £318.6m and profits up 31% in period to 31st Jan 08. Although they are seeing a slowdown in their finance and accounting business, Harvey Nash makes c75% of its revenues from non-financial operations while 45% come from new media, technology, professional services and the outsourcing sector.

CEO Albert Ellis (a keen HotViews reader and 'fellow' blogger!) said, "The current year has started well with robust trading in the first two months. Overall, our businesses in the US, UK and Europe are trading ahead of budget and the previous year."

Harvey Nash shares have soared 12% to 41p on the news (10.00am). Put into context, that is still less than half their high of July 07.

Yesterday Microgen announced that an indicative offer made to the SciSys board for the company had been rejected as “not in the best interests of shareholders” and that talks between the two companies have been terminated. Microgen says that it is still interested in making a bid for the company. SciSys shares closed down 14% lower at 43p.

Ian Spence, in his new Megabuyte daily news emai,l said “At the close of play on Tuesday SciSys had a market cap of £14.2m and net cash of £1.7m at the end of December. The company reported a loss of £1.4m on revenues of £25.6m for the year to December 2007. It is hard to comment on the decision of the SciSys board not to accept Microgen's advances without knowing the level of the indicative offer. However, whilst we are yet to be convinced of the strategic logic of the bid from Microgen's point of view, a takeover looks like a get of jail free card for SciSys shareholders. SciSys shareholders must be hoping that the company's advisers are using Microgen's interest to solicit a higher bid and that Microgen will be happy to take a turn on its 13% stake.”

The news last night from the US that Salesforce.com was to integrate Google Apps into its offering (See Google joints software project with Salesforce) is really the most natural coupling and yet another step in the (now rather long) road towards world dominance for the SaaS and cloud computing models that both companies have pioneered.

Eric Schmidt, Google's CEO, said cloud computing is supplanting "the old model that all of us grew up with." He noted that while the software-as-a-service concept has been worked on for more than 20 years, "we now know what it takes to build this next generation of services."

“Google and Salesforce.com have always had similar models and philosophies about delivering innovations made possible by the Internet," said Schmidt.

"The combination of our leading CRM applications and Google's business productivity applications pushes forward the transformation of the industry to cloud computing," Salesforce CEO Marc Benioff.

The Salesforce/Google coupling is hardly revolutionary but it is another evolutionary step and is, of course, yet another threat to the dominance of Microsoft. Microsoft’s reaction to the deal was to say that it validated their own hosted platform - Dynamics CRM Online - which is already integrated with Microsoft Office productivity suite applications, including the Microsoft Outlook scheduler and e-mail program.

I think when you get all the main players agreeing on the shape of the future, a “tipping point” has surely been reached. I’ve been banging on about Mobile Data for many years – then last year subscribers leaped 10-fold and it has become mainstream. I’ve been banging on about SaaS for over 10 years (well, I called it ASP originally) and I now really do think that is about to go mainstream too. Once ‘tipping points’ are reached, takeup tends to be extremely fast and we all wonder why it has taken so long.

Sage's IMS statement states quite simply that it 'performance to March 08 was in line with analyst's forecasts". It helpfully adds that:
"the current average of 11 analysts forecasts for the half year to 31 March 2008 is as follows: Revenues £617m, EBITA £145m, and pre-tax profits (pre-amortisation) £129m.
The current average of 19 analyst forecasts for the full year to 30 September 2008 is as follows: Revenues £1,248m, EBITA £297m, and pre-tax profits (pre-amortisation) £266m."

So I'll turn to my friend Nick Hyslop - analyst at RBC - to say what that means.

Nick writes:

• RBC are expecting sales of £602m for the half year, leading to PBT before amortisation of £126m.
• Sage derives 31% of its operating profit from the US, and with the sharp decline in the US growth rate, some forecasters are predicting a bigger disappointment here .
• However, Sage's resilience in previous downturns results from the critical nature of its accounting product in the running of small businesses.
• We believe our forecasts are slightly below consensus and we are encouraged by this update with the full results due on 8 May .

In other words, one of Holway's two remaining 'Boring Award Holders" looks set to continue its Boring (consistently good) record. Regardless, Sage shares are down 4% (10.30am) this morning.

In my article last week I dared to suggest that Microsoft might walk away from Yahoo. Indeed I suggested that if Steve Ballmer ever asked my advice (Pigs might fly etc.) then I would say “Don’t buy Yahoo”. Main reasons being that the cultural differences will destroy Yahoo and dent Microsoft shareholder value in the process.

Anyone looking for evidence of the Ballmer/Microsoft style/culture should read Who’s next, Yahoo? In the Sunday Times.

Most analysts seem to expect that a Microsoft increased bid will win the day. If all that was at stake was Yahoo shareholder’s bank accounts, then that would be that. But there is more at stake and that’s why I think Yahoo is right to do everything they can to find ‘another way’. A Yahoo/AOL (now including Bebo) combination looks attractive to both parties. Indeed a Yahoo/News Corp (incl. Myspace) combination is attractive too. Yahoo is also flirting with Google but I would expect that to run into all kinds of competition/regulatory issues.

I find a future which is NOT dominated by Microsoft (as the past has been) attractive. One where users have real choice. Where the ‘Big Boys’ competing for how we access the internet and run our computers would be a much more ‘equal’ Apple, Yahoo+AOL+News Corp, Google …and Microsoft.

The next three weeks could indeed set the seal on who the players are to be in the upcoming Revolution…

As most readers know I am the current Chairman of the Prince’s Trust Technology Leadership Group. You also probably know that since 1988 I have given an annual “State of the ICT Nation” address to the UK’s leading tech CEOs. From 2002 I have done this for the Prince’s Trust and the main annual event has been sponsored by BT. This year is no exception with the ICT Leaders Dinner scheduled for the top of the BT Tower on 25th Sept. We are just about to send out invitations at £1250 per ticket. I expect the ‘Sold Out’ signs up in days – like all other Prince's Trust events of late. I also expect almost every CEO of a major tech company operating in UK to attend - like in previous years. Because of BT’s sponsorship, the Prince’s Trust will raise in excess of £60K from the event.

Readers also know that I start every one of my presentations with a snatch of music. This year I have entitled my presentation, and the following discussion, Revolution. I’m sure you can start humming the theme music already!

I started my so-called career in tech at the start of the IT revolution in 1966. Since then I’ve witnessed three further revolutions – PCs in the early 1980s, mobile in the late 1980s and the Internet in the late 1990s. I now have little doubt that we are on the cusp of another revolution as all the previous Holway themes like SaaS, Web 2.0, ubiquitous/fast mobile comms and a significant change in social attitudes, all ‘Come together’ in a kind of ‘Perfect Storm’. But, as the song says, some people ‘tell me that it’s evolution”. Unlike previous revolutions, this one still doesn’t have a recognisable title yet.

One thing is certain – this revolution is going to change forever the ‘fortunes’ of every single person and company operating in tech today. I’ll certainly report more on this theme and the event itself on HotViews in the months to come.

Which leads me onto…

As I reported last week, Ben Verwaayen’s role as CEO at BT will be taken by Ian Livingston with effect from 1st June 08. I’ve always been able to get an instant response from Ben on any topic but I have never had need of such a close relationship with Ian before. So when, on Saturday afternoon, I composed an email to Ian inviting him to attend and address my Prince’s Trust Technology Leadership Group ICT Leaders Dinner (above) I feared I might not get the response I wanted. So I was both pleased, and not a little amazed, to get a positive response within minutes – rather proving that Ian is both as accessible and as much of a workaholic as Ben! (As my wife pointed out when I related this to her, the story says rather a lot about my activities and priorities on a Saturday too!) As this is likely to be one of Ian's very first public appearances as BT CEO, I’m sure it will add further to the demand for places on 25th Sept.

There is a very good profile of Ian Livingston in the Sunday Times (13th Apr 08) – BT boss faces tough calls.

As Lady Brackell might have said "To lose one CIO is misfortune. To lose two is...." Fill in the gaps!Last week it was announced that Matthew Swindells, who (together with Gordon Hextall) replaced Richard Granger earlier this year, was to leave the NHS IT Programme to join Tribal Group. Swindells was head of IT at Guys & St Thomas and before that, CEO at Royal Surrey (my local hospital)

I’m sure all the rules concerning Civil Servants moving from the public to the private sector have been obeyed

Data encryption group nCipher shares rocketed by over 50% last week – on Friday they reached a high of 181p - after it confirmed that it had received a number of preliminary approaches "that may lead to an offer being made for the company". Putting this into context, though, nCipher shares had been at 270p in mid-2007. The FT (12th Apr 08) reported that “Simon Strong, an analyst at KBC Peel Hunt, said likely bidders might include IBM and EMC, which may be interested in adding more encryption expertise to their security portfolio.” By the close on Friday, the share price had slipped back considerably to 135p. (Note- Looks like nCipher shares are heading back up to Friday's highs in very early Monday morning trading)

Two years back – in 2006 - a takeover bid from SafeNet, a US rival, sent nCipher’s shares to 300p when the bid was first announced. However, the bid was withdrawn after the proposed deal was referred to the Competition Commission. The SafeNet bid prevented Ncipher from concluding its own acquisition of Abridean, a software company, and meant that the company incurred significant legal costs.

On Friday Microgen issued the following statement:

"Microgen notes the recent rise in the share price of Scisys and the associated press speculation. Microgen confirms that on 3 April 2008, it acquired 3,206,081 shares in Scisys at 32 pence per share and on 7 April 2008 acquired an additional 464,605 shares at 36.5 pence per share. In totaltherefore Microgen holds 3,670,686 shares representing approximately 12.89% ofthe issued share capital of Scisys.Microgen and Scisys have collaborated in a number of business areas and this operational relationship continues. An informal meeting has been held betweenMicrogen and Scisys and the Board of Microgen continues to consider its options,which may or may not include an offer for Scisys".

Scisys shares have more than doubled – to 47p - this month so far. To see my previous post on this Click here.

Now, I had started to think that BPO contracts were a bit 'boring' - none more so than back office Life and Pensions. See Outsourcing - Boring, Boring, Boring. Have none of it.

Yesterday I learned that Liberata has been fined £525,000 by the Financial Services Authority for failures in its systems and controls for producing and issuing documents to life and pensions policyholders between January 2005 and April 2007. The failings resulted in 30,000 of Liberata's 1.3 million policyholders not receiving information; 161 of these suffered financial losses totalling £17,584.

The FSA determined that Liberata had 'acted recklessly in failing to heed warnings in its management information that documents were not being produced.' Source - Ovum Holway Hotnews.

Today BPO specialist Xchanging reported a 17% rise in quarterly revenue to £131m and said growth was slightly ahead of expectations; helped by strong growth in financial markets.

"We've made a good start to 2008 which looks set to be a very promising year for Xchanging," said CEO David Andrews. "The high visibility of 2008 revenues from existing contracts and customers makes us confident about continuing our rapid growth".

Regardless of fines, I believe that BPO is the safest place to be in today's stormy weather. As Xchanging is showing, BPO from financial services players can actually be boosted by the current crisis as these institutions search for quickly implemented cost savings.

COA (CedarOpenAccounts) has acquired UK human resource (HR) software company, ASR Computers. ASR is COA's 9th acquisition which have included OpenPeople, Goldenhill and Strata in the HR - a sector which is worth an estimated £240m. Only three weeks back COA acquired UK eProcurement solutions and services specialist, Belmin Group. Other acquisitions since the 'old' Cedar was the subject of an Alchemy-backed public-to-private rescue in Jan 2002 have included OpenAccounts, QSP and Grampian Software.

COA - led by CEO Fiona Timothy - is the UK market leader for the supply of Financial Management Systems (FMS) into the mid-market and is particularly strong on the public and non-profit sectors. It has a strong recurring revenue base from maintenance and associated support as well as a pretty secure upgrade and 'bolt-on' revenue stream from existing clients. In other words it is not as exposed to the vagaries of new customer sales as some others. In the year to March 07, COA increased turnover 16% to £50.5m and increased EBITDA 12% to £10m. My guess would be around 20% growth in the year ending March 08 with the 'normal' exceptionally good 20% operating margin.

Really quite amazing story about the goings on behind the scenes at Atos Origin in the FT - Atos talks labelled 'scandalous'. It centres around discussions of a $110m 'management bonus' for accepting a new restructuring plan put forward by New York's Pardus Capital before it teamed up with the UK's Centaurus Capital.

As I have no idea if any of this is true, I think readers should read the FT article in full.

Further to my piece last month about Mike Danson and TMN, the FT today reports that Tangent has aborted its move on TMN. This now leave the field clear for Danson who bought another 2.9m shares today at 55p taking his holding to 16.3%.

Datamonitor 2.0?

I've just completed my first year as Chairman of the Prince's Trust Technology Leadership Group. I do commend you to read my Half Term Report .

We now have over 50 of the top tech. companies operating in the UK as Patrons or Members. In the year to 31st March 08 we raised over £1.3m - up around 20% on the previous year. This means that we have raised over £5.3m since we founded the group in 2002.

But it's not all serious fundraising stuff. Our events programme is fantastic. So fantastic that everything we do gets sold out within days! Our Gala Dinner at Windsor Castle on 2nd July 08 was a sellout in three days and our Chairman's Lunch on 23rd Apr - with the new BT Chairman, Sir Michael Rake - has been fully subscribed for months. Many reckon we have built the best tech networking 'club' in the UK.

If any HotViews reader would like to know more - or get more closely involved with Prince's Trust Technology Leadership Group - visit our website and/or drop me an email on rholway@holway.com.

SciSys is an old established UK systems developer with particular emphasis on space, utilities, defence, government, communication, business services and transport. They have revenues of c£26m and a market cap. of c£10.6m.

Just thought you might be interested in the 'timeline' leading up to today's stake building by Microgen:

26th Sept 06 - Coda and SciSys ‘demerged’. Scisys opened trading at 110p.

15th Sept 07 - SciSys (share price now 59.5p) announced the acquisition of German-based VCS, a supplier of IT services to the broadcast and space sectors, for €16.7m.

13th Nov 07 - SciSys (share price now 47p) announced “the resignation of Mark Hampson as its Chief Executive Officer with immediate effect. Dr Mike Love, the current Non-Executive Chairman of SciSys and former Chief Executive Officer, will be assuming the role of Executive Chairman with immediate effect.”

1st Apr 08 - SciSys Plc (share price now hits low of 25p) reports a pretax loss of £2.6m, compared with a profit of £532K, on revenue up just 1% £25.6m. The company said it has suspended the payment of a final dividend for the year ended Dec. 31 2007, and that it plans to utilise the cash within the business.

SciSys also said the margin in some of its current market sectors is challenging and that it is moving to higher margin work within those market sectors and into adjacent more profitable market sectors

1st Apr 08 - SciSys. said executive chairman Mike Love bought 700,000 shares at 21.5p, lifting his stake to about 4.22m shares or about 15% of the company.

2nd Apr 08 - SciSys said Philip Taylor has lifted his stake in the company to 1m shares, or 3.5%

4th Apr 08- SciSys says it has received informal indications that a "significant stake" has been acquired by one of its trading partners. (Later reveiled as Microgen buying 3.21m shares)
"The company notes the recent movement in its share price and confirms that it as received informal indications that a significant stake in the company has ben purchased by one of its trading partners." The group added that at the current time, there are no discussions taking place with regards to a potential offer by this company, or any other third party.

8th Apr 08 - It is announced that Microgen has taken a 12.89 percent stake in Scisys (share price closes 7th Apr 08 on 35p)

Last month, Ben Verwaaven’s house in Haslemere, not far from where I live and the location for BT’s famous Summer Parties, was put up for sale in Country Life. On top of that Ben declined my offer to address, yet again, my annual Prince’s Trust event in September saying “I don’t know where I will be then”. I must admit that my suspicions of an imminent departure were aroused!

And so, today, it has come to pass. Verwaayen will step down as BT’s chief executive on 31 May and will leave the board at the end of June when Ian Livingston, who is currently chief executive of BT Retail, will succeed him. Livingston's role will be filled by Gavin Patterson, currently group managing director of BT's consumer division.

There will quite correctly be many eulogies to Ben’s six years at the helm of BT. See
BT’s Verwaayen to step down; Livingston named Chief (Bloomberg 8th Apr 08). And I will readily join in. I’ve had a great relationship with Ben over the years…and some very ‘robust’ conversations. Given the state that BT was in after the Bonfield period, the results have been equally great. Ben understood that BT had to embrace change – not constantly fight it. Cash cows are fine but they don’t last for ever anymore. Indeed they go dry far faster now than ever before. Hence the need to constantly renew the herd.

In some respects that’s what Ben’s departure is doing. Livingston is 12 years his junior, has a good reputation and obviously knows BT inside out. The world that BT inhabits is changing even faster and more radically now than even when Ben took over. BT has to change too. It could lose its lead position in Broadband if Carphone acquire Tiscali UK. Making money from Broadband as a ‘utility’ is a real challenge. But finding hot ‘value added’ services is even more difficult. The challenge is made even harder without a mobile arm; particularly as mobile internet now seems to be taking off in a really big way. (see Mobile internet access increases tenfold – FT 7th Apr 08. ) BT Global Services, which has driven much of the growth in BT’s business, suffers both from the general market slowdown and from considerable margin pressure. As a result, BT’s share price is down a third in the last year. There is much to be done.

But today belongs to Ben. I will miss your instant Blackberry reactions to my comments! I really do thank you for everything you have done for me, my ‘old’ company, for the Prince’s Trust and for BT. I wish you every good fortune in your future endeavours.

I live in a house built in the grounds of Moor Park where Jonathan Swift was said to have written Gulliver’s Travels in 1726. So, when listening to the ‘Write Stuff’ quiz on Radio 4 last night my ears pricked up to the question “What is the connection between Yahoo and Jonathan Swift?”.

Answer? A Yahoo is a legendary being in Swift’s novel Gulliver’s Travels. Swift describes the Yahoos as vile and savage creatures, filthy and with unpleasant habits. Hence the term "Yahoo" has become synonymous with "cretin," "dinosaur," and/or "Neanderthal”. Source - Wikipedia.

Perhaps this should be a warning to Microsoft!

At the very least you might now be able to get a few extra points in a future Pub Quiz.

Last night Microsoft CEO Steve Ballmer gave Yahoo three weeks to begin bargaining in good faith or face a hostile takeover. Ballmer said that the original bid now looked 'generous' taking into account the turmoil in the markets since and the general decline in the value of other companies in similar markets. Ballmer indicated that if Yahoo didn't play ball, Microsoft might lower its bid - or indeed walk away completely.

I've indicated my views on this one before. To reread Click here. I think that Microsoft will face huge cultural issues in trying to assimilate Yahoo. They can't leave Yahoo as a 'separate entity' as they must make considerable cost savings if the deal is ever to make commercial sense. Microsoft has no choice but to go into Yahoo in a heavy way. And that will just destroy the Yahoo culture and its associated value. I also don't think that Yahoo provides Microsoft with what it really needs to face tomorrow's challenges.

The story goes that in the early 2000s, Carly Foirina, whilst CEO of HP, asked Geoff Unwin (whilst still CEO of Capgemini) his opinion on the acquisition of the management consulting division of one of the global Big Five accounting companies. Unwin and Capgemini had had their share of suffering because of a clash of cultures as a result of their acquisition of the consulting activities of E&Y. Geoff's advice to Carly was apparently "Don't".

If Ballmer ever asks me my opinion on acquiring Yahoo, my reply would be the same- "Don't".

Anyway, as Lex in the Financial Times this morning says, whether Microsoft goes 'nuclear', turns into a long protected battle, cuts-and-runs or has a long and damaging integration task "it is Google that will emerge as the clear winner".

I have written about Mouchel many times – particularly in the last year when they acquired both HBS and Hedra. As a result, latest results for six months to 31st Jan 08, show strong revenue growth – up 49% at £308m. However their profits were hit by integration costs with operating margins down from 6.9% to 5.9% on a reduced PBT of £9.3m..

In the circumstances, however, these were a pretty good set of results. Organic growth was an impressive 17% and Mouchel reckons that their market can support a 10% pa organic growth rate right now. Indeed, I have no real argument with that. BPO is certainly the place to be right now.

My ex-colleague John O’Brien at Ovum said that “Mouchel is transforming itself into a support and IT services hybrid along the lines of Serco, which bought ITNET in the UK, and more recently acquired Cornwell Management Consultants. Although Mouchel is a much smaller competitor to Serco the two companies operate in some similar areas within the public sector, across local government, property, transport and education markets. Serco, however, has interests in central government and defence too.”

So it is interesting to note that Mouchel turned to Serco when headhunting its new MD (Steve Morriss) for HBS. The integration of HBS is said to being going well. Maybe they might have more issues with integrating Hedra though. But without doubt for anyone in the UK Support Services/BPO market – particularly in the Public sector – Mouchel is certainly a competitor to watch.

Angle, an investor in early stage technology companies, has received an all-share bid approach worth 60p per share, more than double its current share price. This values Angle at £16.3m compared with its current market value of just over £7m.

The approach comes just a week after the group ended bid talks with a unnamed suitor over an all-share bid, describing the offer as opportunistic and not sufficiently attractive to recommend to shareholders. (Source - Sharecast)

Angle came to my attention as their Chairman is Garth Selvey who many readers might know as the CEO of Comino which was sold to Civica last year. I first met Selvey when I was a NED at TIS back in the late 1980s - before it was sold to Misys. It was my investment in TIS that translated into my Misys shareholding which, to say the least, has seen some major 'ups and downs' since. Fortunately I have few left.

Selvey is showing what the term "serial entrepreneur" is all about!

As many of you know, I am the Chairman of the Prince’s Trust Technology Leadership Group. I am pretty passionate about this because I am concerned about the well-being of our young people. Currently, over 1.2m 16-24 year old are Not in Education, Employment or Training – the so-called NEETs. That figure is up from under 1m when Labour came to power in 1997. The number of NEETs is a very crude measure of the health (or otherwise) of our young people. Clearly many of them are not feckless or causing problems to ‘society’. However, too many are. Ignoring them is not an option because they will not ignore us.

I believe that every British youngster has something to contribute and our task should be to give them that chance and the encouragement to do something really useful with their lives.

There were three news items this week that related to the problems of youth employment, or rather unemployment, that caught my eye:.

- The Lords Economic Affairs Committee issued a report, which gained considerable publicity, on the Economic Impact of Immigration on the UK. One of the clear findings of the report was that “Given the age and skill profile of the new immigrants, native youngsters have been losing out in the battle for entry level jobs”. Because of the availability of immigrants with both higher skills – and often a better ‘work ethic’ – than local youngsters, employers were put off training local workers ‘particularly at the lower end’. For example, in 2006 there were 50,000 applicants for apprenticeships in the construction industry for 9000 places.

-Mr Justice Coleridge was widely reported for a speech he gave in Saturday about the collapse of family life. He said "What is certain is that almost all of society's social ills can be traced directly to the collapse of the family life. I am not saying every broken family produces dysfunctional children but I am saying that almost every dysfunctional child is the product of a broken family. What is government doing to recognise and face up to the emerging situation? The answer is: very little and nothing like enough".

- There is a growing rebellion over the axing of the 10% tax rate. This means that those earning less than £18,500 could pay higher tax. Many of these people find that Family Tax Credits will make up the difference. However, Tax Credits cannot be claimed by those without children or those in full time employment (rather than part time). Those people will pay several hundred pounds more each year in tax. I find this quite incredible. The very group that needs the most encouragement to work (rather than claim benefits), to get on the employment cycle (rather than be a NEET) and NOT to be a teenage parent, seem to be singled out to be hit! Did Gordon Brown really want this to happen when he introduced this in the 2007 Budget? Or was it another example of “Unintended Consequences” (like the changes to CGT)?

I feel very strongly that:

- we must give preference to our own youngsters. We must reduce the number of NEETs. We should do this not just by increasing the skill levels of our own youngsters but also by recognising that not all of them will be suitable for such further education. Therefore we must ensure that it’s our youngsters who get any low skilled jobs on offer.

- we must change attitudes towards the family. I had the incredible fortune of being brought up in a stable family consisting of a mother and father. I’d like to think that my two children had similar good fortune. The fact that we have ‘all turned out OK’ is testimony to the family as a bedrock of good society. We should do everything to ensure that families with mothers and fathers are fostered.

- we should give every economic incentive for our young people to work. I think the current proposals to increase the tax paid by many of the lowest paid youngsters is pretty despicable. Indeed, it seems pretty unacceptable that anyone earning, say, less than £12,000 pa should pay any tax at all.

Note - The opinions above are my own and not necessarily those of the Prince's Trust.

Tiscali UK effectively put itself “up-for-sale” this week. My ex-colleague Michael Philpott at Ovum reckons that Carphone Warehouse is the most likely buyer. If so Carphone would become the largest broadband supplier in the UK – overtaking both BT and Virgin. A likely price tag of £500-£600m is suggested. Carphone, BT and BSkyB are also eyeing Tiscali UK according to the Financial Times today.

Like almost every other part of the IT market right now, “size really does matter” and therefore consolidation is the order of the day. Only a few years ago there were literally hundreds of small niche broadband suppliers. Tiscali UK itself includes other broadband brands like Pipex, Nildram, Freedom2Surf and Bulldog. In a few years time perhaps there will be just two or three UK broadband suppliers.

The trouble is that broadband is a bit like electricity, gas or water. Other than price and service, you really can’t tell them apart.

I’m often asked about my broadband recommendations. I only have experience of one provider – Tiscali. We signed up when our exchange was broadband enabled in 2002. It’s such a small exchange that nobody has so far attempted unbundling. Also we live a long way from the exchange so some of the higher speeds are unavailable irrespective of the ISP you use. Having said that, our Tiscali broadband has worked consistently. It needs resetting occasionally but that is more a BT line problem. At £14.99 pm for an unlimited package, its pretty good value too. It’s very difficult to envisage why I would consider the considerable hassle of changing ISP – an attitude that seems to be identical to most of my friends.

And ‘that’s the rub’. In a saturated and mature UK broadband market, any growth by individual supplier will come from poaching customers from your competitors. What better way of poaching them than buying the ISP? And Tiscali UK is the biggest prize left

EDS has acquired UK-based Vistorm Holdings Limited, a provider of information assurance and managed security services. Vistorm provides information assurance and managed security services in the UK and globally. Vistorm will operate as a separate entity led by its existing management team under its existing CEO, Jim Kent.

Vistorm, founded in 1991 has annual revenues of approximately £50m. No further financial details were disclosed. However, if I was a guessing man, I'd reckon a valuation of around £30-£40m bearing in mind valuations for similar businesses. Vistorm has 220 employees and associates in the UK and serves a broad base of UK clients in a range of industries, including companies as Royal Bank of Scotland, Nationwide and Balfour Beatty.

According to IDC, the Worldwide Security Market is expected to double from $35.7b in 2006 to $71.8b by 2011 with a 15% CAGR for the 2006-2011 forecast period. The Worldwide Security Services Market was valued at $17b in 2006 and is expected to grow to $37.9b in 2011, with a CAGR forecast for the 2006-2011 period of 17.4%.

Security is one of the (few) really hot areas in the SITS arena right now and many of the leading players (like EDS) want to ensure that they are part of one of the major growth sectors. In the UK Detica has made quite a name for itself in the security area which I am sure has not escaped the attention of others.

That EDS is the purchaser in the UK is also worthy of note. EDS hardly ever feature in the UK M&A lists. Vistorm is based in Warrington, Cheshire – “just up the road” from the home of Bill Thomas (Exec VP responsible for EDS EMEA) who announced the deal.

What with the mega Shell contract on Monday, it’s turning into quite a Bill Thomas/ EDS news week!

Logica has today appointed Craig Boundy as CEO Global Operations. He'll be responsible for Logica's blended delivery programme and will manage the company’s offshore centres, currently based in India, the Philippines and Morocco. Craig comes from C&W where he was COO. Before that Craig was COO at Energis and a VP at BT Ignite. My contacts at BT say that Craig was "highly regarded" whilst at BT. Indeed, it is obviously from those BT days that Andy Green knows Craig.

The other interesting Logica announcement today is that Andy Green will unveil the conclusion of his Business Review on 22nd Apr - a bit earlier than expected. This is one announcement that I will make extra efforts to attend. I usually prefer one-to-one briefings but I'm make an exception in this case as I'd like to bring HotViews readers my views as soon as possible.

Any readers wanting further evidence of the ‘Power of Blogs’ might be interested in reading the article in e-commerce news about the Shell contract. I reported this in HotViews on Monday (see Mega contract for EDS, AT&T and T-Systems from Shell) I’ve been out of the office ever since and haven’t actually spoken to anybody from the media about it since. But, like many other publications, they read HotViews and quote me without actually talking to me at all! Sometimes I’ve found my ‘words of wisdom’ can appear in over hundred different places without me uttering a word.

I wouldn't normally cover such news items but I know a few HotViews readers know my old friend and neighbour of over 30 years, Bill Cockburn. He was the CEO at The Post Office before moving to head WH Smith and then a term on the board of BT before starting the normal pluralist NED career.

Anyway, after Chairing the School Teachers Review Boady, from today Bill takes on the Chair of the Senior Salaries Review Body. Right now this could be described as a 'high profile' role because it covers parliamentary pay, pensions and allowances - something which has been on the front pages of the newspapers for some months. I'm sure we will hear more from Bill's 'Body' in the months to come!