Pursuit of Growth


31 March 2009 François Enaud


The right moves in the M&A market can transform an organisation’s business model and market presence, but few have shown the verve of IT services provider Steria. As CEO François Enaud tells Jim Banks, acquisition is about more than just the numbers.


It is no surprise that 2008 saw companies refocus their attention on efficiency and cost control, prompting many to reassess how they should meet the challenges of the global economic downturn.

The speed of change in the world’s economy has bred uncertainty and caution, often dampening corporate appetite for growth through M&A, yet some companies have been able to maintain their track record of successful acquisitions.

"We wanted to have a high position in our customers’ value chains, so we targeted specific segments rather than trying to be the next IBM or Accenture."

These companies tend to have a strong strategic vision driving their long-term expansion plans. How do they balance organic growth and M&A to create value? François Enaud, chairman and CEO of end-to-end business and IT services provider Steria, knows from experience how to do just that.

"I believe that growing organically is the best way to generate business value and this is our top priority," he says. "That’s why we have invested in innovation and recruitment. However, organic growth is continuous and there comes a time when you need to make a significant stepwise change to your business. It is at such times that an acquisition makes sense and can accelerate your entry into new markets," he says. "Our recent transformation was all about shaping the company in line with the growth of the market."

Steria is one of Europe’s leading IT services companies, with strategic focus in financial services, telecommunications, media, retail, utilities, transport and the public sector. It offers consulting in core business processes and IT systems and has operations in 16 countries, a far cry from when it was founded 40 years ago.

Enaud became CEO in 1998, when the company was one-tenth of its current size, but well known in France for its expertise as a systems integrator. Enaud fixed a strategy that would see Steria become prominent in Europe, with acquisitions playing a key role.

By 2000, the company was one of the top-five managed services providers in France and consolidated its position with the acquisition of three French companies in the managed services and telecommunications sectors.

"We wanted to have a high position in our customers’ value chains, so we targeted specific segments rather than trying to be the next IBM or Accenture. We decided to shape the company to be strong in select markets," says Enaud.

The acquisition of Integris in 2001 from Bull put Steria in Europe’s top ten IT service companies. "We couldn’t have achieved that geographic expansion in one step through organic growth. The acquisition made us an international company with a presence in 12 European countries and completely changed the story of our organisation," adds Enaud.

In 2005, the acquisition of Mummert Consulting took Steria into the German market, and added high-end consulting capability to the company's offering. Two years later, the purchase of Xansa, in the UK and India, along with the opening of nearshore centres in Poland and Morocco, further broadened Steria’s horizons.

"Xansa was a strategic acquisition for us. It has made us a leading player in the UK, as well as already being a leader in Germany, both of which are unusual for a French company. We recognised the need to have offshore capability, and with the Xansa acquisition we became, in one step, a global leader in offshoring," Enaud says. "Through Xansa we have an asset in the form of BPO services, which is important for clients looking to cut costs and optimise their back office. Xansa has propelled Steria into the fourth position for F&A services in Europe."

Vision and value

As one might expect, Enaud believes that successful acquisitions begin with selecting the right targets, which means having clear, rational objectives.

"The evidence suggests that 70% of all mergers and acquisitions fail. However, we have been successful with our mergers with Xansa and Mummert and I would attribute this to defining our objectives and selection criteria up front, along with rapid integration and excellent communication," Enaud says.

"You have to define the criteria before the acquisition, not during, and you need a strong strategic rationale and long-term vision. You shouldn't buy for tactical reasons."

Enaud also values cultural suitability. "To be sure you are in a good position to merge, the companies must share common values," Enaud says.

"You must invest a lot in internal communication, which must be effective, accurate, transparent and substantive. All stakeholders must know what is going on."

"Ours is truly a people business, so we rejected some earlier targets because the cultural fit was not right. Speed is also vital. Once a target has been chosen, speed of implementation is paramount for getting value from the deal and drawing the two organisations into one. You need to integrate the businesses quickly and to do this you must work in parallel. When you are negotiating an acquisition you should use that period to engage and anticipate what to do when the merger is completed. You have to move fast, particularly when it comes to internal networks and connecting people with their new colleagues," Enaud advises.

The teams driving the acquisition must comprise people from both companies, who can create common objectives. Similarly, both organisations should play a part in the constant monitoring of the integration process, which should be built around the right dashboard and a set of metrics that align with strategic goals that all sides understand.

Enaud believes everyone involved must understand why the two companies are joining forces and how this will affect them. Good communication will ensure everybody keeps their eye on the ball during the period of transition.

"You must invest a lot in internal communication, which must be effective, accurate, transparent and substantive. All stakeholders must know what is going on. Also, the acquiring company must demonstrate that opportunities are open to all, so that appointments to management positions should be made quickly. Put the right people in the right places regardless of which organisation they come from," says Enaud.

For Steria, M&A is approached on a basis of shared values, collaborative integration and clear communication. Above all, the company only makes an acquisition for strategic reasons. Enaud warns against buying another company simply to add volume. His most important message is that M&A is very much about people, not just the numbers on the deal.

Power to the people

The importance of cultural compatibility in the success of Steria’s acquisitions cannot be underestimated, particularly with Xansa, a move that dramatically changed the company’s capabilities and competitive position. Steria is unique in its sector in that a large proportion of its employees hold shares in the company, giving them a say in how it is run. This has shaped the importance of cultural fit in its M&A deals.

"Our employees own a big part of the capital and our focus on governance is a large part of our unique proposition. We also have a strong commitment to corporate social responsibility to how we work with our local communities. That is part of our culture and our identity, which makes us unique and attractive," explains Enaud.

"Each time we acquired a company, we opened our shareholding scheme to the new employees. For example, after the acquisition in Germany, half of Mummert’s consultants chose to become shareholders in Steria. We see staff ownership as a key differentiator for the company."

The inclusive, transparent and thorough approach to acquisitions that Steria has taken has had measurable effects on the success of post-merger integration. For instance, attrition rates among staff formerly at Xansa have actually fallen since the acquisition, and all major client contracts that have come up for renewal since the merger have been successfully renegotiated.

The message about the value of the Xansa deal has been understood by both clients and employees, and it is through this that real corporate value is built.