L to R: NelsonHall's David McIntire, Rachael Stormonth, Andy Efstathiou, and Dave Mayer 

NelsonHall recently attended an Atos North America event in Dallas which focused on the newly formed Atos-Syntel organization in North America. Earlier this year we noted that Atos in the U.S. was still a work in progress (see here). The event was held just days after its acquisition of Syntel had closed and we were keen to learn about the integration plans and the strategy for future growth in North America.

We came away assured that, with a new CEO in place, several problem contracts no longer an issue, and an enlarged set of capabilities, Atos North America is in a very different position from what it was at the beginning of the year. And looking more widely, Atos can now position as offering scale end-to-end services across infrastructure and applications in all its key geographies. We also note that this is an integration that is being done with perhaps less speed than some of its previous large-scale IT services acquisitions.

The significance of the Syntel acquisition

The event was held in Atos' regional U.S. HQ in Irving. Opened last year, the facility is also its first Business & Technology Innovation Center (BTIC) in North America. A clear emphasis throughout was that Atos in North America is now in a stronger position in terms of resourcing for a broad range of application services, including developing cloud-ready applications, as well as being able to support enterprises with reducing their infrastructure spend to invest in digital. It was also apparent that, in the short term at least, the growth opportunities are in mining Syntel’s client base rather than with acquiring new logos.

In July we wrote a short piece on the significance of the Syntel acquisition both to Atos North America and to its Business & Platforms Solutions (B&PS) business globally (see here). As a reminder, among other things, Syntel brings to Atos:

• Increased presence in North America (adding 4.5k employees and ~$825m in regional revenue, expanding it by around a third, and means that Atos North America has a broader set of capabilities it can offer to clients in the region
• A business that will be margin accretive to Atos
• Three large accounts: Amex, State Street and Fedex (which were ~45% of Syntel total revenues)
• A boost to its BFS and Insurance sector businesses (approaching $420m and $140m in revenue in 2017 respectively), also a significant U.S. application services practice in the Healthcare/Life Sciences vertical
• A large Indian delivery capability, augmented by its SyntBots Intelligent Automation platform
• Capabilities in apps development, testing and application modernization services (‘digital’ areas of application services)
• Its 'Customer for Life' ethos, which has been a significant factor in client loyalty.

We also noted that, given the level of reverse integration that is happening in B&PS, and the fact that Syntel had a larger presence than Atos in the U.S., the role of Syntel senior management is critical to the success of the integration. And the transition so far has been seamless: former Syntel CEO Rakesh Khanna, for example, remains as CEO of Atos-Syntel, which now operates as a unit within the B&PS division, and is on Atos’ Executive Committee. He presented alongside Sean Narayan, who heads B&PS globally, and Simon Walsh, the new head of Atos North America (an external appointment) about the capabilities of the combined entities.

Portfolio: with applications plus infrastructure services capabilities in North America, Atos can now position in the region around digital transformation

Atos freely acknowledges that until now, the only examples it could provide where its services were evidently supporting clients in their digital transformation were from Europe. It was not by accident that the event opened with Rakesh Khanna providing some case study examples of recent Atos-Syntel projects with clients outside its top 3 (AmEx, State Street, FedEx) where its services have helped the client play catch up with large digital disruptors in their respective industries. Other examples included a blockchain initiative and supporting an online insurer impacted by a high level of significant technical debt by migrating ~880k lines of code from COBOL to Java.

Three insurance sector clients presented: all are mid-sized organizations and have been clients of Syntel for many years. Common strands were consistency of (quality) delivery and proactivity, e.g. in one case approaching the client with a proposition around the transformation of its underwriting process. One of the three is also a new Atos IT infrastructure services client from earlier this year, having switched from an incumbent provider after 15 years: this client referred to the relative ease and speed of sourcing, appreciating having fresh eyes looking for new opportunities, and an outcome-based pricing model (based on net new premiums) that had been agreed.

Delivery: integration of B&PS into Syntel delivery model already in progress

While little was said about the reverse integration of Atos’ large B&PS accounts into the Syntel delivery model, or of Atos’ India delivery centers into Syntel’s, work on this has already started. The integration includes:

• Transfer of Atos’ North America and large global India-delivered B&PS contracts to Syntel, representing around $1.25bn, roughly one third of Atos’ overall B&PS business, of which $160m is from legacy Atos
• Alignment of Atos’ B&PS India-based delivery with Syntel
• Folding of some Atos delivery operations in Pune, Chennai and Mumbai into the larger Syntel facilities.

Any new B&PS deals incorporating global delivery will be pursued under the Syntel model.

The use of the Syntbots platform is expected to play a significant part in the ongoing delivery transformation in the RISE 2.0 program of the B&PS unit (which in our opinion had been in catch-up mode in the application of automation and AI). Atos is also assessing how and where Syntbots can play a part in its Infrastructure services business, e.g. in applying ML to incident management.

Improving sales execution & delivery performance in I&DM in North America

Three former problem contracts were terminated or expired earlier this year. The remaining few have been or are being addressed; one large problem contract has been reset and the new North America CEO holds a major incident review call every morning: there is evidently close attention being paid to improving delivery execution, also in staying close to other I&DM clients.

Following a period of disappointing sales performance, Atos is refreshing its I&DM pre-sales and sales personnel and architects in North America. There have been some new wins recently and the net new business is apparently strong.

Syntel clients happy with the larger scale of Atos

In the two weeks following the acquisition, Atos CXOs (Thierry Breton, Sean Narayanan, Eric Grall) managed to visit all Syntel’s key clients, representing ~70% of its total revenues; most were positive in that, as part of Atos, they can potentially look to Atos-Syntel for support in other geographical operations or in other services.

Future growth: farming rather than hunting; mid-market the primary focus

Among the attributes of Syntel emphasized by clients at the event were its effectiveness in forging deep relationships with them over the years and its consistency of delivery. Nearly all of Syntel’s revenue was through its existing client base and it brings to Atos strong account management and significant presales and solution architecture capabilities in North America, albeit for relatively (for Atos) small engagements.

Atos North America intends to leverage Syntel’s model and look primarily for smaller deals to grow wallet share in existing accounts. This is a significant change in emphasis in the GTM: both cross-selling and targeting smaller engagements are new areas of emphasis for Atos. An integrated approach into the Syntel client base has already commenced. Syntel’s 'Customer for Life' ethos brings in a new and improved approach to managing customer relationships; at the event there was a clear emphasis on client-centricity and on selling to specific client needs with a strong awareness that their appetite for the pace of change may differ significantly.

We note that in North America there is little sector overlap between Atos and Syntel: for example, Atos will have few local client references in financial services that it can draw on, though for smaller opportunities this will not be as critical a factor in vendor selection as it is in large deals.

Expect to see more vertical-specific offerings mid-term

Before Syntel, Atos’ portfolio in North America was primarily horizontal IT infrastructure services, though its earlier acquisitions of Anthelio Healthcare and three small healthcare consulting firms (two from Conduent) had indicated an intention to expand its presence in the U.S. healthcare sector. Syntel now brings in some application services business in the payer sector. Developing an integrated end-to-end portfolio for targeted segments of the healthcare sector remains an ambition.

We also expect to see a stronger play in the longer term in specific sectors within FS&I, also in manufacturing & retail.

Outside its top three clients, Syntel’s client base is typically drawn from mid-sized organizations, which is not where Atos has typically played.

Summary

The integration of Syntel immediately improves Atos North America’s ability to speedily resource B&PS deals without having to use resources from other regions, something which has at times been a competitive impediment. A large deal team remains in place and the legacy Atos North America focus on larger-sized enterprises for I&DM services remains. The ambition is also to cross-sell legacy Atos services into Syntel clients and to make a broader move overall into the mid-size market, and it is here that Atos is more likely to win broad-scope (infrastructure plus applications services) deals in the short to mid-term.

The increased emphasis on client intimacy in North America is also becoming more evident in the larger I&DM business in the region, where, with a new CEO in place, we also note a stronger focus on improving delivery reliability.

As well as having an immediate impact on Atos North America's offerings portfolio, Syntel is also a powerful boost to the B&PS RISE 2.0 initiative.