Cheers arivia!

Following the successful conclusion of the one of the most anticipated acquisitions in the local ICT industry, T-Systems expects to complete the integration of arivia.kom within the next 18 months.

The deal, which took three years to finalise, has given T-Systems access to the economic growth nodes of the country, positioning it to take advantage of growth opportunities within the public sector through some of the country's key parastatals.

Mardia van der Walt-Korsten, MD of T-Systems SA, says the main driver of the acquisition was not only the opportunity for T-Systems to profit from public sector growth, but also to contribute to the overall development of ICT in the country.

The arivia deal comes with two large-scale five-year contracts to provide IT services to Eskom and Transnet - the former arivia stakeholders. The negotiations around the terms and conditions of these contracts were largely responsible for the protracted sales process.

T-Systems started servicing the contracts from the beginning of this month. The inclusion of the outsourcing contracts as part of the deal made the arivia acquisition much more attractive when it was put up for sale, initially also garnering interest from companies such as Dimension Data, IBM, Siemens and Accenture.

While Van der Walt-Korsten would not comment on the value of the two outsourcing contracts, she hints they are much bigger than the deal T-Systems penned with the Old Mutual Group, in February 2008. This deal was valued at R1.8 billion, over five years, and was described as one of the biggest outsourcing deals ever signed in SA.

strategy, marketing and integration Gert Schoonbee explains that the two outsourcing contracts will be serviced under a new business model and will also see a renewal of infrastructure, new services being added, as well as an improvement in service levels.

“We are looking at a transformation of services that will take place at both the parastatals. The plan for Eskom is very aggressive; we expect to see the transformation completed within a two-year period. Transnet will take longer,” says Schoonbee.

The scope of the contracts remains similar to that within which arivia provided services to the country's transport and electricity utilities, but on a larger scale. Eskom becomes T-Systems' biggest customer, explains Schoonbee, surpassing even the Old Mutual Group.

He points out that T-Systems will also focus on retaining other key arivia customer accounts, including the Airports Company of SA, the State IT Agency and the Department of Water and Environmental Affairs - arivia's second-biggest revenue-spinner.

Schoonbee says T-Systems is comfortable with the potential risk associated with the public sector, as well as the current economic downturn. In addition, Eskom faces financial difficulties as it struggles to keep the lights on, while the Department of Water and Environmental Affairs faces a looming water crisis in SA.

“Yes, there are risks associated with non-payment, among others, but we are aware of these and we are not hiding these from our shareholders. We are in this for the tough times, as well as the good times,” he states.

Schoonbee refuses to reveal how much T-Systems paid for arivia, but says the company paid “fair market value” for the state IT services provider. Arivia is profitable, he maintains, saying the sustainable turnaround exercise concluded at the company three years ago has ensured it reported a profit for the past two years.

The new acquisition is already expected to contribute significantly to T-Systems' bottom line this year.

Van der Walt-Korsten says that, contrary to how the market saw arivia, the company is a valuable asset for T-Systems and the combined entity has positioned the group as the biggest IT outsourcer in the country. She also claims T-Systems has become the third biggest player in the overall IT space in SA.

With the acquisition of arivia, T-Systems also acquired 1 400 skilled employees. While not giving an outright assurance that no job losses can be expected going forward, Van der Walt-Korsten says there is a heavy focus on integration and consolidation of the two entities.

“T-Systems is a growing company and if we can retain all the clients we gained and continue the growth path, there is no reason why we shouldn't retain jobs. The focus is not on downsizing; we are looking at creative solutions, including reskilling and retraining people where needed.”

The arivia brand has effectively disappeared and the merged entity will go forward under the T-Systems banner.

Schoonbee explains the acquisition marks the end of a period of exponential growth for T-Systems and the next two years will see the company focus on consolidation to improve profitability.

“But you can't stop growing, you need to keep chasing increasing revenue,” adds Van der Walt-Korsten.