Logica and CMG confirm merger plans

IT services firms Logica and CMG are hoping that size will matter, as they confirm details of their proposed £512m merger.

Logica chief executive Martin Read said: "We're going to be a bigger, stronger player. And we believe that customers will feel more comfortable giving us bigger contracts."

Current customers will benefit from the merger, predicted Read. According to a review of the top 20 customers for both firms, only four companies appeared in both lists.

"We were surprised by how little overlap there was in the customer base," said Read, adding that he hopes to build on CMG's human resources and payroll outsourcing knowledge.

While Logica has a good skills base in providing consultancy for SAP enterprise resource planning applications, CMG has built up its SAP practice in the human resources side, explained Alistair Crawford, chief executive at CMG.

"There is a similar fit in our Oracle practices," he added.

Crawford suggested that the move may spark further consolidation in the market. "The choices [facing IT services firms] are to shrink to become niche players, or merge," he said.

Despite their apparent good fit the combined firm, which will be called LogicaCMG, is hoping to realise £60m in annual savings through reducing duplication.

Savings of £40m are expected to come from shedding six per cent of the workforce. A further £20m will come from combining their wireless telecoms businesses.

As yet, the only confirmed departure is that of CMG financial director David Robbie. Further job losses will come in geographies in which both firms operate, including the UK.

While the six per cent reduction in headcount will apply across the business, there is no indication at this stage of how this will fall in individual countries, said Seamus Keating, financial director at Logica.

The decision to merge was broadly welcomed by analysts, who reacted well to the early decisions made about the practicalities of merging, such as naming the management team.

But concerns remain about how the combination will help to build the business process outsourcing capabilities, currently one of the few profitable areas in IT services.

"We would have preferred Logica to acquire a major outsourcer thus moving itself into business process outsourcing," said Judith Jordan, an analyst at Ovum Holway.

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