Cap Gemini Ernst & Young

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Cap Gemini Ernst & Young

Place de l’Etoile
11 rue de Tilsitt
75017 Paris
France
Telephone: ( + 33) 1 47 54 50 00
Fax: ( + 33) 142273211
Web site: http://www.capgemini.com

Public Company
Incorporated: 1967 as Sogeti (Societe pour la gestion de l’entreprise et le traitement de l’informatique)
Employees: 57,000
Sales: EUR 7.7 billion ($7 billion) (1999)
Stock Exchanges: Euronext Paris
Ticker Symbol: CAP.012533
NAIC: 541511 Custom Computer Programming Services; 541513 Computer Facilities Management Services; 541512 Computer Systems Design Services

Cap Gemini Ernst & Young is one of the world’s heavy-weights in the information technology services industry. Created from the August 2000 merger of France’s Cap Gemini S.A. and the IT consulting division of Ernst & Young, the new group employs more than 57,000 people worldwide and generated some EUR 7.7 billion in pro forma combined sales in 1999. Led by founder and chairman Serge Kampf and CEO Geoff Unwin, Cap Gemini Ernst & Young operates in three core areas: software development and systems integration, worth 51 percent of the company’s annual sales; information systems consulting and management, which adds some 23 percent of revenue; and the management of information systems, which also generates 23 percent of the company’s sales. Cap Gemini Ernst & Young is quoted on the Euronext stock exchange.

Birth of an Industry in the 1960s

Serge Kampf received degrees in law and economics but turned his attention instead to the newly developing computer industry in the early 1960s. Working as a salesman for French computer systems manufacturer Bull, Kampf quickly made his mark, becoming director of the company’s Grenoble region operations. After Bull was sold to GE, however, Kampf left the company. After a brief stint in the commercial export department of an industrial baker, Kampf decided to go into business on his own. Despite a personal aversion to computers—he would admit to Time in 1991 that he had a “holy aversion” to them—Kampf recognized the growth potential of the computer industry. Instead of turning to the hardware side, Kampf instead determined to make his mark on the nascent software side, reasoning the large and international corporations would inevitably turn to experts to help implement and manage their information technology needs.

With a handful of partners, Kampf founded the Société pour la gestion de l’entreprise et le traitement de I’informatique, or Sogeti, in 1967. The company joined a myriad of computer services companies, most of which focused on the Paris market. Yet Kampf stuck to his Grenoble roots, recognizing that that region and other provincial markets remained largely underserved by the IT industry.

Sogeti met with almost immediate success, posting more than FFr 1.5 million in revenues by the end of its first year, while building up a staff of some 20 employees. The company was also already profitable—with net profits FFr 60,000 worth more than four percent of its sales. Kampf also weathered a management crisis in the company’s first year, surviving a power struggle among the founding partners to take majority control of Sogeti. The company’s policy of targeting its local market paid off with a growing number of contracts with corporations and government bodies, as these began to adopt computer technology for their management and data storage needs. One such large contract took Sogeti to Switzerland, where the company opened its first subsidiary operation in 1968. By the end of 1969, Sogeti’s sales had topped FFr 4.2 million, and its payroll had swelled to 49.

From the start, Kampf, who held 84 percent of the company’s shares, led Sogeti on a program of partnerships and mergers with others in the industry. An early partnership was set up with Gemini Computer Systems in 1969, giving the U.S.-based company’s French operations a 20 percent share of Sogeti. Before that partnership was dissolved after only a year, Kampf also attempted to bring in a major player in the French IT industry, CAP. However, CAP refused to join the then un-known Kampf and his company.

Sogeti’s growing treasury—the company refused to pay out dividends—enabled it to turn its attention to growth by acquisition. In 1970, the company acquired rival Solame, and then a 52 percent controlling interest in Sorgas. Sogeti then joined in with a group of partner companies to form Euroinfor. Mean-while, the company had also pursued a policy of maintaining close proximity with its growing list of customers, opening branch offices throughout France, beginning with Lyon in 1969. By 1972, Sogeti had offices in more than 12 French cities, plus a growing network in Switzerland through its Sogeti Suisse subsidiary. The company’s Parisian office opened in 1979. A strong factor in the company’s growth was its policy of decentralized management, giving the manager of each office a large degree of autonomy—and financial incentive—while guiding the company’s overall strategy from its Grenoble head-quarters.

By 1973 company’s sales had topped FFr 52 million. Payroll had grown to nearly 650. That year, however, saw the company make a dramatic change in its position in the French IT market. After gaining some 15 percent of CAP—the company that had snubbed him a few years earlier—Kampf led Sogeti on a hostile takeover of its larger rival, building up a position, combined with Kampf’s 15 percent, of 49 percent of CAP by the end of 1973. As CAP largest single shareholder, Sogeti placed pres-sure on its other shareholders to gain full control—which it did after a bitter battle in June 1974. The new company, dubbed Cap Sogeti, was quickly joined by another major acquisition, that of Gemini Computer Systems in September 1974. After merging the three companies, the new group took on a new name in January 1975, that of Cap Gemini Sogeti.

Growing into the 1980s

The new group had become one of the French IT industry’s largest, with sales topping FFr 226 million and nearly 2,000 employees. The company continued its dual growth strategy of internal expansion—opening new branches across France and launching new foreign subsidiaries, offices, and partnerships in London in 1973, Washington, D.C., in 1978, and Spain in 1979— and growth by acquisition through purchasing shares in such rivals as Bossard in 1976 and Sesa in 1982. By the end of 1982, Cap Gemini Sogeti had passed the FFr 1 billion mark.

If Cap Gemini Sogeti remained a largely European company—with its primary focus on its domestic market—it was beginning to nurture global ambitions. At the beginning of the 1980s, the company began to make its first moves into the all-important United States IT market, making a number of acquisitions that were then regrouped as subsidiary Cap Gemini America in 1986. By then, the company’s official language had already turned to English—marking its global ambitions. The company had also gone public and was listed on the Paris Exchange in 1985, providing fuel for its future growth in the rapidly developing IT market of the 1980s.

By the end of the 1980s, Cap Gemini Sogeti had secured a position as the world’s fifth-largest IT services company. The company had made particularly strong advances across Europe, making acquisitions in (West) Germany, Italy, Denmark, Sweden, and Finland to bolster its presence throughout the European Community. The company also continued to add to its U.S. presence, including the acquisition of Merit Systems in 1989. By then, the addition of full control of France’s Sesa in 1987 had enabled the company’s sales to leap to more than FFr 4 billion. The company made a new jump in 1990 when it acquired the United Kingdom’s Hoskyns Group. Led by Geoff Unwin, the Hoskyns Group was one of the leading European IT services companies, and the IT leader in the United Kingdom. That purchase, for $345 million, helped push Cap Gemini Sogeti’s annual revenues past the FFr 9 billion mark in 1990. Total payroll was now nearly 16,500.

Global Leader in the 1990s

The Hoskyns acquisition inaugurated Cap Gemini Sogeti’s most ambitious expansion to date, joining more than 20 other acquisitions into the mid-1990s. In order to fuel its expansion, Kampf decided to abandon the company’s long-cherished independence, selling a 34 percent stake to German industrial giant Daimler-Benz. The 1991 sale, for a total of more than $750 million, gave Daimler-Benz the right to acquire majority control of Cap Gemini Sogeti by 1995. The deal was supposed to aid Cap Gemini Sogeti in its push to build up its market share in the United States, where the company held only one percent of the market, compared to its seven percent share of the European market. It also gave the company deeper pockets with which to pursue its continued expansion.

Company Perspectives:

Cap Gemini Ernst & Young benefits from a balanced geo-graphic coverage that will permit it to pursue a global strategic offensive around the following axes: an operational approach centered on large international companies and based on Ernst & Young’s expertise in this area (an approach known as account-centric); a policy of strong alliances with the major players in the market, permitting the new group to bring its clients quick solutions adapted to the changes related to the Net economy; an ambitious human resources program designed to attract and retain the best people by offering them attractive opportunities for professional advancement; a systematic capitalization on expertise in both the sector services.

Yet Cap Gemini was hard hit by the worldwide recession, as momentum across the computer industry slowed in the wake of the Persian Gulf War and the economic uncertainty across Europe and the United States. In 1992, the company posted its first-ever loss of FFr 72 million on revenues of FFr 11.88 billion. Its losses mounted still higher for the following year, reaching nearly FFr 430 million, while revenues slipped back to FFr 11.03 billion. The company was at last forced to call into question its decentralized approach. In 1993, Cap Gemini Sogeti launched a companywide reorganization that regrouped the company’s operations around seven strategic business areas. It was hoped the new organization would enable the company to benefit from increasing cooperation across its far-flung operations as business areas began to share expertise, resources, and clients. The company also shed some of its underperforming units, including its German subsidiary Cap Debis, with revenues of FFr 1.1 billion created from the Daimler-Benz share acquisition (Debis was Daimler-Benz’s IT subsidiary). The re-organization, dubbed “Genesis,” cost the company more than $100 million, but began to bear fruit by 1994. After reducing its losses to FFr 94 million that year, the company returned to the black in 1995, posting net profits of FFr 52 million on revenues of FFr 11.3 billion.

The choice of the name Genesis for the company’s 1990s reorganization pointed the way to a new name as well. In 1996, the company dropped its founding company’s name, and be-came known simply as Cap Gemini S.A. The following year, in what resembled yet another rebirth for the company, Daimler-Benz, rather than increasing its stake to majority control of Cap Gemini, instead moved to divest its shareholding, restoring Cap Gemini its independence. The partnership, hit at its outset by the recession, had never quite jelled. With the arrival of a new head at Daimler-Benz, who performed an about-face of his predecessor’s diversification strategy, the two sides agreed to a divorce.

Newly independent Cap Gemini returned its attention to its expansion, acquiring full control of Groupe Bossard in 1997. It also began capitalizing on a new matter of concern across the computer industry—the so-called Y2K bug, which rendered computers and computer software incapable of recognizing the date change into the year 2000. Cap Gemini released its own successful bug-fixing software in 1996 and became a leader in the worldwide race to protect computers—and the societies that depended on them—from a vast meltdown at the beginning of the next century. The company also benefited from the run-up to the launch of the new common European currency, the Euro, and the need to reprogram computer systems for the new currency.

At the same time, the company began to look to a new means of asserting itself on the global marketplace, that of strategic partnerships with other computer industry heavyweights. As such, Cap Gemini concluded marketing and technology deals with such giants as Oracle Corp., Cisco Systems, ICL, Microsoft, and others. Meanwhile, Cap Gemini continued in its struggle to assert itself in the U.S. market. Despite its ambitious acquisition program begun at the start of the 1990s, Cap Gemini remained a bit player in the key U.S. market, dominated by the likes of IBM and EDS. While the company had enjoyed strong growth through the last half of the 1990s—in the four years since 1996, Cap Gemini nearly doubled its revenues, reaching EUR 4.3 billion (FFr 28.3 billion)—its U.S. presence remained limited.

The company took new steps toward improving its U.S. position and building itself as a global IT services heavyweight for the new century. In April 1999, Cap Gemini acquired New Jersey-based Beechwood, which specialized in providing IT services to the telecommunications industry. Yet it was the following year, in June 2000, that Cap Gemini scored its biggest coup yet. In June 2000, the company announced that it had agreed to purchase Ernst & Young Technology, the IT consultancy operations of Ernst & Young for $11 billion. The merger, which combined Ernst & Young Technology’s 18,000 employees with the nearly 40,000 Cap Gemini employees, created the EUR 7.7 billion (sales) IT services giant Cap Gemini Ernst & Young. At the same time, Serge Kampf, who remained the company’s chairman, took a first, albeit tentative move, to relinquishing the company he had built into one of the industry’s top IT services specialists when he appointed Geoff Unwin as the newly enlarged company’s CEO. While analysts hoped for a name change, or at least a shortening of the company’s name, Cap Gemini Ernst & Young looked forward to staking a fresh claim to a major position in the world’s IT market.

Principal Subsidiaries

Cap Gemini America Inc.: CGS Holdings Ltd. (U.K.); Gemini Consulting AB (Sweden); Gemini Consulting A.S. (Norway); Gemini Consulting Holding Ltd. (U.K.); Gemini Consulting Iberia S.A. (Spain); Gemini Consulting S.A.; Gemini Management Consulting Spa (Italy); Immobiliere Les Fontaines; SCI Paris Etoile; TDI GmbH.

Principal Competitors

AGENCY.COM Ltd.; American Management Systems Inc.; Icon Medialab International AB; Andersen Consulting Inc.; iGATE Capital Corp.; Atos S.A.; iXL Enterprises; Bull; Keane, Inc.; CIBER Inc.; Logica; CMC PLC; Perot Systems Corp.; EDS; Razorfish Inc.; Renaissance Worldwide Inc.; Sapient Corp.; Sema Group plc; IBM Corporation.

Key Dates:

1967:: Sogeti is founded.
1973:: Sogeti launches a hostile takeover of CAP.
1974:: Company acquires Gemini Computer Systems.
1975:: Sogeti, CAP, and Gemini merge to form Cap Gemini Sogeti.
1982:: Cap Gemini Sogeti tops FFr 1 billion in revenues.
1984:: English becomes official company language.
1992:: Cap Gemini Sogeti posts first net loss in company’s history.
1993:: Net losses reach FFr 429 million; company launches “Genesis” restructuring plan.
1995:: Company returns to profitability.
1996:: Company’s name is changed to Cap Gemini S.A.
2000:: Cap Gemini acquires Ernst & Young Technology for $11 billion and changes name to Cap Gemini Ernst & Young.