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EVRY To Be Taken Private by Apax Partners: Tieto Misses the Opportunity to Acquire a Company in Recovery

EVRY has announced its largest shareholders, Posten Norgen and Telenor Business Partner Invest are to sell their shares (representing a combined 70.24% of capital) to Apax Partners. Apax Partners has secured an additional 3.15% of EVRY shares from Folketrygdfondet (Norway’s government pension fund) and is to launch a NOK 16 per share all-cash public tender. The tender values EVRY at ~$600m (~NOK 4,272m). The acquisition follows EVRY's strategic review it it announced in August.

Apax Partners beat Tieto in this acquisition.

The price of ~ $600m for a company the size of EVRY, with its $1.8bn in revenues and its 10.4k headcount looks small. However, the offer values EVRY on a PER multiple of 19 (NelsonHall estimate, including net debt) and is therefore significant. Apax is acquiring EVRY, at a time where EVRY has clearly improved its financial performance.

After years of struggle, EVRY resumed organic growth in Q1-Q3 2014 by a NelsonHall estimated 3%. This is a good performance, given the exposure of EVRY to India offshore service providers in several clients (DNB, which recently awarded to HCL Technologies a $400m non-mainframe IT infrastructure management contract, was a top 10 EVRY client). And the growth is in spite of EVRY being exposed to declining revenues from major contracts (with Telenor, Posten, Statoil): EVRY is the former captive of Telenor, and purchased the IT services captives of Posten (ErgoGroup) and Statoil/Hydro (IS Partner).

EVRY's profitability has been poor in recent years; 2013 EBIT margin was just 0.7%, impacted by continued restructuring and also a large one-off due to goodwill depreciation on the DNB account. But in 2014, EVRY will improve very significantly its profitability level: NelsonHall expects to see an EBIT margin of ~3.8%.

The future of EVRY is looking more promising than in recent years: but this does not mean the future is looking rosy. Further restructuring is likely, largely driven by offshoring. Unlike Tieto, EVRY has not massively adopted global sourcing; its headcount in India/Ukraine/Latvia is only ~2.9k, or 28% of headcount (Tieto’s IT service business has 43.5% of headcount based in lower cost locations).

Why have the main shareholders of EVRY decided to sell their stakes now, rather than in a year's time, when economic conditions will, hopefully, be better, EVRY’s financial performance improved and its share price higher? Possibly to remove ambiguities arising from being a main shareholder as well one of the largest clients of EVRY. This is something that BT pointed out when its sold its stake in Tech Mahindra.

Potentially, because of the financial outlook of EVRY, which, far from being disastrous, is however moderately inspiring: EVRY is a vendor, large enough to get mega-deals but probably not large enough to maintain large investments in terms of restructuring, delivery offshoring and industrialization, and service portfolio management.

For Tieto, the EVRY sale to Apax is a missed opportunity. It was a one-time opportunity to gain a strong presence in Sweden; become the number one IT services vendor in Norway; and overall expand to over $4bn in annual revenues. Tieto had the financial capability to acquire EVRY: its market cap is ~€1.5bn, net debt is close to zero (~€25m), and it has €84m in cash on its balance sheet. Tieto would have benefitted from cost synergies and also from a diminished exposure to its struggling telecom R&D business. 

To some degree, history is repeating itself: in 2008, EVRY had considered buying Tieto, when Tieto itself was struggling.

EVRY stock was down 9% on Monday at the time of the announcement and is now aligned on Apax’ offered share price.

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