EVRY has announced that it is considering strategic opportunities including a sale. EVRY is in theory an attractive target: the company has a sizable presence in a region with short- to mid-term growth potential:

• It is the largest IT service vendor in Norway ($1bn in revenues, excluding its financial services unit). Norway, with an economy that is heavily influenced by oil & gas exports, has good long-term growth prospects
• It is also significant in Sweden (~$530m in revenues).  Sweden is a cyclical country but offers high short-to mid-term growth potential and higher margins than many Continental European countries
• The company also has a sizable business in financial services (~$575m in revenues), where it provides mostly IT infrastructure management and banking services, largely in Norway. Its financial services unit has been a solid growth engine for EVRY with a 7% average revenue growth since Q1 2011.

EVRY has failed to thrive in recent years. This is partly due to its heritage: EVRY is the former EDB Business Partner that was a captive of Telenor. EDB has grown by acquisitions, including those of two other very significant captives in Norway:

• ErgoGroup, a subsidiary of Norgen Posten (Norway Post) in 2010
• IS Partner, the captive of Statoil-Hydro, in 2008.

Facing competition from much larger competitors (including Tieto,WM-Data/Logica/CGI, IBM, CSC and HP), EDB was looking to scale rapidly, to address large deals and secure existing relationships.

However, this approach has also increased the dependency of EVRY on several key contracts with its largest clients: Telenor, Norgen Posten, Statoil and Hydro. Unsurprisingly, following the sale of their captives, EVRY's key clients have reduced their spending with EVRY over time, and opened up to other vendors e.g. Telenor to Accenture, CSC, Tieto, and TCS; Norway Post in 2013 to TCS and Capgemini; Statoil to HCL, Capgemini and Fujitsu.

In addition, EVRY has also been heavily impacted by increasing competition from Indian vendors. Recent examples include DNB, a key historical client of EVRY (HCL: 2014, ~$400m), Volvo Car Group (Tech Mahindra and Infosys in 2014), SAS (TCS, in 2013).

The consequence is that EVRY’s  revenues have stagnated at around NOK 12bn since its acquisition of ErgoGroup and its margins have taken a hit: EVRY's EBIT margin in 2013was below 1%, a consequence of continued restructuring.

So who are the likely buyers? First and foremost, those companies that will not be shy of further restructuring: this could be the case with:

• Equity funds. EQT, and then Advent International have owned the largest standalone IT services vendor in Denmark, KMD. Another potential buyer is German equity AURELIUS, the owner of Getronics
• Atos, with its €830m net cash position (as of June 2014, on a pro-forma basis) is also a potential buyer. Its strategy continues to be acquisitive. EVRY would fill a gap in Atos’ presence in Northern European. Northern Europe is second to the U.S. in terms of priority
• Tieto has the financial strength to buy, with a market cap of €1.5bn. Its net debt is minimal (~€30m). It could therefore fund the acquisition of EVRY (market cap of ~$670m, up 30% since the announcement). Tieto aligns with EVRY in terms of geographies: roughly-speaking, Tieto has a ~$1.1bn business in Finland and a ~$750m business in Scandinavia, the vast majority of this in Sweden. A combined Tieto/EVRY entity would have a balanced $1bn business in each of Finland, Sweden and Norway. And Tieto has indicated that its priority in the very short-term remains the Nordics.

We believe that far less likely are the following:

• Indian vendors: they clearly have the cash to fund the acquisition of EVRY and some have the Nordics as a priority region within Continental Europe. But the impact on their operating margin would be very dilutive and require a more complex integration than any Indian vendor has taken to date (EVRY has a headcount of 10k)
• CGI: its preference is growth in the U.S. commercial market, and it is less interested in IT infrastructure management services. The same is true for Capgemini
• Finally, HP, IBM, CSC and T-Systems are more focused on growing their cloud infrastructure services businesses.

And of course, following the strategic review, EVRY may decide that a sale is, after all, not in the best interests of its shareholders.