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HPE ACG Will Join CSC as Parent Company Carves Out Its Services Organization
Posted by Donald A. DePalma on December 8, 2016  in the following blogs: Supplier Business Issues, Translation and Localization, Market Data
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CSA Research spoke with Joël Giovannini, Director of HPE Applications and Content Globalization, the language services business unit of Hewlett Packard Enterprise. Based in Grenoble, France, HPE ACG is third on our list of the world's 100 largest language service and technology providers. In 2010, it leapt from #24 to #1 on that list, following HP's 2009 purchase of EDS, a global technology services company. In June 2016, we noted that in 2015 ACG changed its parent corporation from HP to HPE after Hewlett Packard split into two corporations, and that it could join Computer Sciences Corporation (CSC) as HPE carves out its Enterprise Services Division on its mission to become a more focused provider of next-generation infrastructure

Giovannini confirmed that ACG, a unit of HPE Enterprise Services, will be part of the planned merger with CSC that will result in a new company, as yet unnamed, on April 1, 2017. HPE shareholders will own 50% of the resulting company, which is expected to have revenues of US$26 billion. Board of Director nominees will be split 50/50 between CSC and HPE. 

"ACG will benefit from being part of a 'pure play' services company," according to Giovannini. He explained that this will make it easier for ACG "to do business with organizations that we might have had difficulties working with in the past – for example, competing IT companies or customers of HPE competitors." HPE's rivals range from Apple to Dell to IBM to Teradata. 

HPE isn't alone in evaluating its offerings and deciding to focus on core competencies. CSA Research expects that similar discussions are going on at other large enterprises, especially those that have language service business units. As we speculated in mid-2015, other major corporations with LSPs – Capita Group (#20), ManpowerGroup Arial,Hel (#24), RR Donnelley (#13), WPP (#11), and Xerox – will ask themselves: "Can we generate more shareholder value by investing more or divesting our stake in the language sector?" And if they choose to continue, should they acquire other companies? CSA Research contends that this carve-out will affect the market in several ways:  

  • ACG will bring localization to increased mainstream consideration. CSA Research finds that most IT outsourcing companies have some localization revenue and resources. CSC should be no different, so once it merges with HPE Enterprise Services, ACG will grow its revenue. With the combined companies' increased scale and visibility to IT decision-makers, we think that ACG could develop into a more formidable player in the language market. For example, it could leverage CSC's cash flow and access to capital to buy complementary service and solution providers to expand its portfolio. With this added size and capability – and no longer part of a systems and software manufacturer with a different agenda – the new company could reposition its ACG unit into being a full-service content-centric provider offering cradle-to-grave support for content and code development. We've discussed this approach with more innovative LSPs and technology vendors in support of activity such as the expanded global customer experience (GCX) that CSA Research recently analyzed.

  • It will force its four largest competitors to action. As we observed in our annual report on the language industry in June 2016, uncertainty reigned at four of the five largest companies. TransPerfect (#2) pondered a U.S. court verdict that threatened a change in ownership, HPE ACG anticipated this CSC decision, LanguageLine Solutions (#4) awaited the results of a sell-off by its equity firm owner, and SDL (#5) refocused its energy on the language sector and began divesting itself of non-core business units. CSA Research thinks that the increased size and visibility of ACG with CSC will light a fire under these largest LSPs, including Lionbridge (#1), to accelerate their own efforts to scale up and better differentiate their offerings. It could help push TransPerfect's founders to some resolution of their standoff. Investors, competitors, and technology and service companies in adjacent markets have expressed their interest in acquiring this profitable firm ever since the first court papers were filed. 

  • It will drive activity among other acquisitive and ambitious providers. Several clusters of providers will accelerate their own organic and growth-by-acquisition plans, including: 1) publicly traded LSPs such as Keywords Studios (#18) and RWS Group (#6); 2) LSPs owned by private equity groups – Moravia (#10), United Language Group (#23), and Welocalize (#7) among them; 3) content-focused firms such as AMPLEXOR (#9); and 4) deep-pocketed conglomerates such as Capita and RR Donnelley – if their boards see value in this content-centric, omni-channel GCX opportunity. All this activity will put increased pressure on the much smaller companies. They will be forced to compete on their major differentiator of specialized and personalized service against broader service offerings, much larger scale, and the flexible pricing that these bigger companies bring to the table.
Finally, these changes will affect the demand side of the market. Buyers of language services will encounter a greater stratification of choices, more options for full-service solutions, greater awareness and capability to support global content strategies, and increased investment in the technology that helps buyers and suppliers scale to create powerful multinational, multilingual, and multichannel experiences.


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