ZDNet.com.au news editor
Renai LeMay
(Credit: CBS Interactive)
commentary As the knife slowly slips away from their throats, Australia's largest listed IT services companies are no doubt counting their blessings.
This time last year, the likes of SMS Management & Technology, Oakton, ASG, UXC, DWS and CSG were feeling the heat as their share prices sank through the floor, by as much as 77 per cent in some cases compared with highs over the preceding 12 months.
It's not a situation that any listed company likes to face, let alone one enmeshed in the extremely competitive environment that is Australia's IT services marketplace. When companies' share prices head south, several forces swing into action.
For starters, institutional investors and fund managers — the shadowy powers behind the throne of all major companies — begin to get nervous and hold urgent briefings with the relevant boards, dragging CEOs in to explain exactly what's happening ... even if all that's going on is a general fear of recession in an economy spooked by a debt crisis in the United States.
But the more nerve-wracking problem for listed companies is the fact that when their share price takes a sudden dive, wishful acquirers start to realise they can potentially pick up well-cut diamonds for not much more than the price of lumps of coal.
You see this sort of activity quite frequently. For example, it was shortly after Volante's share price hit rock bottom that the company became the vulnerable target of a hostile predator; the ultimately doomed Commander.
And it doesn't appear as if Peter Kazacos' baby Kaz was being valued at its peak when Telstra picked it up in 2004, or, in the internet service provider market, that iiNet was in tip-top shape when Amcom picked up a 20 per cent stake in Michael Malone's telco.
So, when Australia's entire sharemarket sank deep into the red late last year, I and others in the industry thought it was only a matter of time until a multinational competitor like Fujitsu or CSC or even a private equity firm picked up one of the nation's listed IT services providers for a song.
How wrong we were.
Instead of a wave of mergers and acquisitions, all the industry saw instead was a handful of small buyouts and one large, long-awaited one; Fujitsu's move to take the troubled Kaz off Telstra's hands. And, of course, HP's mega-acquisition of EDS, which hasn't affected the market a great deal so far.
How anti-climactic.
The nugget of excitement buried in this quantum of boredom is that Australia's IT services market has come through its relatively mild financial crisis fairly unscathed, and certainly in much better shape than it could have ever anticipated.
Australia's IT services market has come through its relatively mild financial crisis fairly unscathed, and certainly in much better shape than it could have ever anticipated
According to a recent IDC report, Australia's IT outsourcing market grew to almost $6.5 billion by 31 December last year. And there's more to come; the analyst firm noted the ongoing effects of the global financial crisis would continue to drive further outsourcing.
Foster's and Qantas are just some of the big names to have recently thrown uber-dollars at IT outsourcers, and there's more to come. Consequently, share prices in the sector have gradually resumed their normal heights, even if some companies did have shaky results announcements.
And there is more competition than ever before. Australia now has the normal multinational IT services firms operating in Australia, along with a second tier of local, Indian and Chinese players that have never been this strong.
This industry dynamic means several things.
Firstly, chief information officers can afford to play hard ball with IT services vendors. Why hand all your work to Big Blue, after all, when there are a half-dozen small and likely more agile players desperate to take small packages of your spend off your hands? Consequently, prices will fall, and the quality of services will also rise.
Secondly, good staff will continue to be in high demand.
There's no doubt that a lot of staff were laid off during the panic in the market at the end of last year; however, my bet is that many of these were poor performing workers that companies wanted to get rid of anyway, and just needed a convenient excuse to turf.
If you're a top performer in a large IT services company, odds are you can trade down to a smaller and perhaps friendlier environment, while picking up increased responsibilities, a bigger salary and that motivating underdog status at the same time.
Ultimately, if there is one message Australia's IT outsourcers should be taking to their staff, it's this: the field of play has now stabilised. It's time to get your game on.
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Good people always find work. Organisations like Oakton are slowing but surely losing all their best people. The latest employee opinion survey results show that staff think the leadership of the organisation sucks to say the least. Only the old guard bloketon is likely to return. Whilst lay offs occur the exec leadership were out buying new luxury cars - obscene!