CSC, which two years ago lost a large outsourcing contract to rival T-Systems and seemed to be floundering, hopes its new empowerment status will open doors to large contracts in mining and financial services.
About 18 months ago, questions were raised about the company's continued survival in SA, after it failed to secure an empowerment partner and then retrenched several staff members. The collapse of a potential deal followed on the heels of the loss of its biggest outsourcing contract.
Project Rosa, a R1.8 billion contract with Old Mutual, accounted for more than half of CSC SA's revenue while the company held it, but the deal was awarded to T-Systems, in 2008. At the time, the deal was the biggest outsourcing contract in SA's financial services sector. CSC held the order for three years, since 2005.
Yesterday, the company announced it had sold a 30% stake in its local business to empowerment group Amabubesi Capital, for an undisclosed amount. The deal is expected to aid CSC to capture large outsourcing contracts.
Peter Drube, MD of CSC's South African unit, says the company is happy to have finally secured an empowerment partner. He adds that there are still a few conditions outstanding, but he is confident the deal is in place.
Going mining
Drube says the deal will open doors to new opportunities, particularly within the resources and financial services sector. “The market size of opportunities we can respond to increases significantly.”
CSC has been growing its local business since losing the Old Mutual deal, says Drube. However, he concedes it has been difficult to sign up big deals as companies require service providers with empowerment credentials to maintain their own rating.
“We didn't have accreditation and the opportunity to participate in a number of bigger opportunities put constraints on our business.”
Despite the lack of opportunities, Drube says CSC has traded according to head office's expectations and met budget requirements.
CSC, headquartered in the US, is a global company that is listed on the New York Stock Exchange. It was founded in 1959 and has operations in the US, Europe, India and SA, with a global staff count of about 94 000.
Its offerings include IT and business process outsourcing, and IT and professional services. Revenue for the financial year to October was $16 billion. The company does not strip out SA's revenue, but includes it under the “other international” revenue category, which amounted to $1.5 billion in the 2010 year.
Drube says CSC hopes to benefit from a “few big deals on the horizon” and is targeting double-digit revenue growth over the next few years. He explains CSC is committed to SA and never contemplated pulling out of the country.
CSC elected to sell a stake instead of entering into an equity equivalency deal to demonstrate its commitment to SA, says Drube. CSC opened its doors in SA in November 1999.
Big blow
However, about a year-and-a-half ago, the picture was not so rosy. Last May, ITWeb reported the company seemed to be in dire straits as a former employee claimed he and several other staff members were being laid off.
The retrenchments followed the collapse of an empowerment deal with undisclosed potential BEE partners.
In 2008, then country manager Alan Hardiman was tasked with developing a new strategy for the unit and pledged to return it to profitability after CSC lost the Old Mutual deal.
However, the company has been quiet for the past 18 months and does not seem to have announced any new substantial deals, prior to yesterday's statement outlining the empowerment deal with Amabubesi.
Amabubesi has investments in several sectors, including property, healthcare, tourism, ICT, retail, manufacturing, resources and financial services. Director and co-founder Peter Moyo will become CSC SA's chairman and his team will also join the company's board to assist CSC in implementing its growth strategy.
Moyo is “delighted” to be working with CSC and looks forward to “achieving our shared growth aspirations for our businesses”. He could not be reached for further comment this morning.
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