The move by Lockheed Martin to spin out its government IT services business and merge it with Leidos Holdings completed last night. The combination of Leidos IT solution and technical services plus the Information Systems & Global Services (IS&GS) segment from Lockheed Martin has created a c$10bn business.

The transaction value was c$4.6bn and included a $1.8bn special cash payment to Lockheed Martin and $2.8bn of Leidos shares.

The move was designed to allow Lockheed Martin to concentrate on its aerospace and defence business but the exit is also a way of removing itself from the low margin services business that had been struggling (see here). For Leidos, it adds scale and from a UK perspective, prepares it to expand the UK business. In contrast to Lockheed Martin, as a dedicated services and solutions provider Leidos can focus all its resources on IT services. In a market where both UK government (the core sector for IS&GS) and overall IT services spending remains tight, Leidos will need to make the most that the benefits of scale and a dedicated focus can bring.

The structure of the UK business has not been disclosed yet but we understand Leidos will have c1500 people concentrating on Public Services, Transportation, Energy and Defence, so there is no change in the focus areas that were previously covered by the separate operations. Within the expanded Leidos business the major MoD contract signed in 2015 remains its largest contract in the UK (and one of the largest across the group).  

With this move Leidos becomes a more substantial player in the UK market and essentially a new competitor for IT services companies with more established UK operations, particularly those with major government interests. We’ll keep up to date with developments. 

In a hugely unexpected turn of events, the BBC has just reported that the £11b roll-out of smart gas and electric meters throughout the land has been delayed yet again on account of the fact that the comms infrastructure – which should have gone live yesterday – is not yet ready. A re-examination of sheep’s entrails now leads government to forecast a September go-live date, despite the received wisdom that goat's entrails are reportedly far more accurate.

Frankly, the comms infrastructure is not the real problem.

Regular readers will know my views that this was a doomed project from inception (start with More ‘smart meter’ mutterings and work back), as clearly demonstrated by the Government’s own numbers. According to the latest progress report issued in June by the (then) Department of Energy, Climate Change and Boundless Blue-Sky Thinking, a further 559,000 smart meters were installed in domestic premises in Q1 2016, taking the total so far to 2.89m, leaving some 47m ‘dumb’ meters yet to be replaced. At current course and speed that will take about another 20 years, somewhat missing the 2020 deadline by the merest smidgen.

Perhaps that won’t matter as by then we probably won’t have enough electricity generation capacity for the smart meters to measure anyway! Home windfarms, anybody?

Thankyou to everyone who responded to my plea for information on the UK Telecomms market in the 1960s. See - I still need your help.

I now have all the information I need and will publish it in due course. It is VERY interesting!

I was alerted by The Times today (See – App makes a meal of restaurant leftovers) to the Too Good to Go food App. Basically food outlets which want to reduce food waste, advertise left over food at reduced prices. Users can search and then pick up their leftover meal during a given time slot – one assumes at the end of the day/night. The App is free for the restaurants. I assume the App just takes a cut of the revenue generated from users. Users can also donate money so that the meals can be supplied to others in need.

The Times gives an example of the Red Dragon Chinese restaurant in London which had dishes reduced from £8.95 to £2.90 at the end of the night.

The App was co-founded by Chris Wilson and Jamie Crummie with funding from Leeds and Queen Mary Universities.

We as a nation – and I must admit including the Holway household – throws away too much completely edible food. 600,000 tonnes a year The Times suggests. So Too Good to Go seems to work on every level.

Business process services provider arvato has formed a new partnership with robotic process automation (RPA) pioneer Blue Prism, following a successful pilot project at one of its local authority customers, Sefton Council.

arvato UK&I CEO Debra Maxwell told us recently, RPA has proved far more successful than they expected, hence the reason behind formalising the partnership. Arvato will now become one of the growing number of major services partners alongside the likes of Deloitte, Sopra Steria, Capgemini, Cognizant, IBM and Hexaware.

Sefton is the first local authority we know of that is openly using RPA to improve efficiency and productivity. And it follows another, Enfield Council, which has started using IPSoft's virtual agent Amelia in its helpdesk support (see here). 

We have known about the project at Sefton for a while now, and it has not involved any loss of jobs that we know of. Rather, people have been freed up to work on more valuable customer facing enquiries, which are experiencing increased demand due to recent welfare changes.

RPA is performing the more labourious back office tasks like signing up people to direct debit payment for council tax, to indexing documents and assigning them to specific workflows. These tasks typically involve scanning documents and manually uploading information into 'several disjointed back-office platforms'.

Enfield and Sefton's decisions to promote Intelligent Automation, suggest a changing attitude by local authorities around the use of Business Process Automation. To us it seems a 'no-brainer', as a means to do more behind the scenes, faster and more accurately, but retain the same level of resource at the front line (see Business Process Automation – opportunities in the Robotic Revolution).

Lyceum Capital has sold Adapt to New Jersey-headquartered Datapipe. Datapipe provides managed hosting and cloud services and its lead investor is Abry Partners. The terms of the deal have not been made public.

Lyceum first invested in Adapt back in September 2011 acquiring a majority stake for £30m. At the time it was pitched as a buy-and-build venture, but Adapt in fact only made two acquisitions: eLINIA in 2012 and Sleek in 2013.

Adapt CEO, Stewart Smythe, told us that private equity firms had been “trying to bounce us into UK mergers”, but the deal with Datapipe brings an interesting global angle. First and foremost this is about Datapipe accelerating its European presence. However, it also opens up opportunities for the Adapt business, which serves medium and large organisations, many of who will have overseas operations.

Under Lyceum’s ownership, Smythe has overseen a managed decline in the company’s co-location/connectivity business to the extent that around 65% of revenue is now driven through Adapt's private cloud platform. Here revenue growth is c20%. Top line growth, however, has been dampened by the decline in the legacy revenue streams. Indeed, Group revenue declined almost 14% in FY15 to £43.3m. EBITDA (pre-exceptionals) was £5.6m (FY14: £4.6m). FY16 numbers haven’t been released yet.

Smythe says that joining the Datapipe ‘stable’ enables him to accelerate his strategy by 18-24 months. In particular, around public cloud where Datapipe has a more advanced offering. That should help the UK business against competitors such as Rackspace, but also the more traditional IT services firms, including IBM.  

There are only 24 tickets left for our 2016 Presentation & Dinner at the Royal Institute of British Architects, London, on the evening of 8 September.

If you were thinking of coming and haven't booked yet don't leave it too late. More details here and you can book via event organisers tx2 here.

Cisco reported solid if unspectacular revenue growth in FY16, with turnover up 3% yoy to US$48.7bn after being ‘normalised’ to account for the divestiture of its service provider video CPE business during the period.

Growth would otherwise have been flat but Cisco did increase adjusted (GAAP) net income 20% yoy to US$10.7bn and diluted net income per share to US$2.11 compared to US$1.75 cents in FY15.

The company is slowly but surely shifting its revenue mix away from hardware and into software and services. Global services turnover (US$12bn) was up 5% yoy whilst product sales fell 1% to US$37.3bn. Much of that product decline originated in lower sales of telecommunications routers where Cisco is facing intense price competition from new market entrants and greater deployment of SDN/NFV technology.

Cisco’s global switch revenue held stable yoy whilst its data centre infrastructure (up 4% to US$3.4bn) and collaboration (up 9% to US$4.4bn) businesses expanded. Like rivals including IBM and FireEye, Cisco’s security turnover also grew 13% to US$2bn.

The EMEA region saw a 2% fall in product revenue (US$9.7bn) counteracted by a 6% gain in services turnover (US$2.6bn), a trend new Cisco UK and Ireland chief executive Scot Gardner is under pressure to manage safely.

News of large scale lay-offs also emerged, not unusual for Cisco but rumoured to be much bigger this year (9,000-14,000 staff or up to 20% of its entire workforce).

Cisco confirmed 5,500 redundancies (and US$400m of Q117 costs) as it looks to trim opex, with traditional switching and routing hardware expertise presumably first out of the door. The scale of the transition was always going to be painful, but Cisco looks to be making steady progress even if the pace of change will not be fast enough for some.

It appears that the break-up of UK-based recruitment & HR software firm Bond International may well be approaching its final stages.

Near-30% stakeholder, Toronto-based ‘stealth’ software aggregator, Constellation Software, has agreed not to obstruct the sale of Bond’s  HR and Payroll Software and Services Division to Tenzing Private Equity (see Bond intent on gradual dismemberment) and has extended its offer to purchase Bond’s remaining Recruitment Software Division until 8th September. Constellation is holding to its original bid price of 105p per share (see Constellation formalises bid for Bond), but not surprisingly, it has reserved the right to adjust the offer if circumstances change.

Bond’s shares closed last night at 110p. Constellation last upped its stake in Bond in November 2010, buying 8.2m shares at 75p. The Canadian firm is a canny buyer and of course has benefited from Bond’s sale of its other subsidiaries. An each-way bet that seems to be paying off.

Accenture’s multi-year contract extension with Dixons Carphone is the latest in a series of outsourcing deals agreed by the retailer that drops cash into SITS supplier pockets.

Dixons Carphone was previously a customer of EnergyQuote JHA, acquired by Accenture in 2015, and the French company will be delighted to keep the high-profile UK logo on its books.

The agreement will underpin ongoing systems integration work following the merger of Carphone Warehouse and Dixons Retail in August 2014. That is now over two years of effort which shows how complex (or thankless) a task splicing disparate IT systems together within large organisations can actually be.

But we feel the real action (and the reason for retaining Accenture) rests on the application development and support for the Dixon Carphone Group’s bespoke Connected World Services customer relationship management (CRM) and omnichannel retail platform (honeyBee).

Much of the retailer’s multi-channel sales operation now rests on honeyBee (originally developed in partnership with Accenture). We think it can ill afford to risk any delay or disruption to its ongoing development as the Group looks to reduce its opex and pursue a sweeping digital transformation programme.

Dixons Carphone does now appear to have recognised the error of its ways in trying to keep and maintain Carphone Warehouse and Dixons Retail legacy on-premise systems thus far. It is now adopting a hybrid cloud strategy that will see more of its applications and services hosted centrally and managed by third party vendors. It moved 2,500 virtual server images alongside database and middleware components into IBM’s infrastructure as a service (IaaS) cloud platform last month for example, and also signed a £54m three year contract extension with UK IT staff agency InterQuest.

Updata Infrastructure, part of Capita IT Enterprise Services, won a competitive tender to supply managed network services to the Gloucestershire Hospitals NHS Foundation Trust.

The five year agreement will provide local (LAN) and wide area networking (WAN) infrastructure to 140 hospitals and GP surgeries alongside virtual private network (VPN) connectivity for remote workers.

Terms of the deal were not disclosed and its financial value is likely to be modest. More importantly it does provide another demonstration of Capita’s ability to pick off public sector contracts beyond its core business process outsourcing (BPO) business where basic networking connectivity is required.

Certainly the £80m acquisition of Surrey-based Updata in 2014 now appears to be paying dividends for Capita. 2016 has already seen Updata deliver another five-year deal to supply WAN services to Northumbria Police worth £2.1m, and a framework agreement to connect 109 school and public sector sites in partnership with network provider CityFibre.

If Updata continues its success, it will help Capita carve out a signficant portion of post-Brexit networking connectivity contracts in both public and private sector organisations that had previously held off investment.

With more applications and services moving into cloud hosted environments, LAN/WAN connectivity becomes an increasingly key piece of the infrastructure jigsaw and we think many organisations will need to upgrade bandwidth, reach and capacity to cope with the strain.

Major banking companies in the UK are dependent on bespoke software for their core banking operations. These businesses are central to the banks’ success but are under pressure due to higher costs, increasing competition and additional regulation. We have long argued that the established banks should increase their use of third party providers of more standardised software to reduce cost and complexity and to accelerate innovation.

Following a series of meetings with software vendors and several company-specific reports, FinancialServicesViews now provides an overview of the banking software market in its latest report; “The role of Banking Software Providers in the transformation of the sector”.

This analysis discusses the issues of dependence on bespoke software and comments on the key criteria for supplier choice as the banking sector increasingly looks to the suppliers of standardised software for a wider range of core banking functionality. With the emergence of new challengers to the established banks, the inexorable move to more standardised systems and the role that the software providers can play in the implementation of innovative technologies and services, this area should continue to experience above-average growth over the medium term.

This report is available to subscribers to FinancialServicesViews, via this link. If you would like to subscribe to this research stream, please contact our Client Services team.

Our fourth annual ‘Evening with TechMarketView’, sponsored by NetSuite, will take place in London on Thursday 8 September 2016. We're delighted that so many of you have already booked your place but if you haven't got around to it yet don't leave it any longer! We're down to the last few places - you can book by clicking here.

The TechMarketView analyst team is busy preparing for what promises to be an enjoyable and informative evening with drinks, dinner and of course analysis of the disruptive trends and suppliers shaping the UK software, IT services and business process services sectors.

Following the success of the sell-out 2015 TechMarketView Presentation & Dinner, this year’s event will once again be held in the magnificent premises of the Royal Institute of British Architects (RIBA) in Portland Place, London, from 6.15pm. We’re expecting a similar audience to the previous three years with around 250 ‘movers and shakers’ from the UK tech scene, for what has been described by previous C-level attendees as “the best networking event in the industry”.

The evening, which will be centred around our 2016 research theme ‘Surfing the Waves of Disruption’, will commence with short, insightful presentations from the TechMarketView analyst team highlighting key trends in the UK software and IT services market. As in previous years there will also be a guest appearance from the CEO of a disruptive ‘Little British Battler’ company.

The formal part of the evening will be followed by ample time for networking over pre-dinner drinks, sponsored by Wells Fargo, and a sumptuous three course dinner with your peers.

TechMarketView Presentation & Dinner 2016

Venue: Royal Institute of British Architects (RIBA), Portland Place, London

Date & time: Thursday 8 September 2016, from 6.15pm

Ticket price: £395+VAT per person for TechMarketView research subscription clients and £495+VAT per person for everyone else.

Tables of ten are £3,950+VAT – ideal if you fancy bringing the team along or entertaining clients and prospects.

To secure your place, please click here to book or email tx2 Events who are organising the evening for us on eventenquiries@tx2events.com.

The TechMarketView Presentation & Dinner 2016 is proudly sponsored by:

Idox is making another digital services acquisition on its quest to reach £100m in revenue in the medium term (see here and work back).

After last months’ purchase of Open Objects in the health and social care space, Idox is now buying Liverpool-based digital agency Rippleffect Studio Ltd for £2m in cash.

Rippleffect is a 70-person B2C player offering strategy and planning, user experience, web design and development, ecommerce, search engine optimisation and digital advertising. Clients include Everton and Liverpool football clubs, UK Sport, Visit Guernsey, Aldermore Bank, J D Wetherspoon and the Health Foundation.

Rippleffect is in a hot space, but clearly underperforming. FY15 revenues were down 2% yoy to £6.3m, and it just broke-even with a net profit of £35k (down almost 60% on the previous year). Idox expects it to be earnings enhancing in year one, so a tight control on costs and focus on growth is going to be critical. The price of 0.3x revenue therefore sounds about right.

Idox plans to integrate Rippleffect into the business, in conjunction with with its other recent digital acquisition of Reading Room (see here). It will continue to be managed by its existing team reporting to the group MD responsible for Idox's digital agencies.

Idox’s plan is to ‘expand its delivery of digital services across all its domains and sectors’. However it's not clear where the synergies lie between Rippleffect and Idox’s core in information management for the public and engineering sectors. This is key to achieving those all-important cross-sell and up-sell opportunities.

Business operations are becoming more digital, which means your company faces increased competition, more complex markets and higher customer expectations. These challenges increase service complexity and the operational stress on your frontline, while you remain under pressure to improve service quality, performance and cost.

As well as all of this, do you find your operations teams are wasting their talent monitoring screens and managing backlogs instead of focusing on delivering services? Wouldn’t you prefer them to be driving revenue through innovation and better customer service?

This is where Automation comes in.

Automation technologies often promise that they will help with this. However, as your operations team currently spends the majority of its time and effort evaluating, analysing and deciding what to do, automation technologies can’t help with this, as they only assist by automating actions.

This is why you need Intelligent Automation.

Intelligent Automation harnesses the power of machine intelligence to emulate human reasoning that drives decisions and automates actions. It enables the complete digitalisation of services whilst retaining strategic control in the hands of the business.

Our software could transform your organisation into a high velocity, service-centric environment through digitalisation, automation and orchestration.

Not only this, but our software boasts the first fully visual Intelligent Automation environment, with no embedded scripts, or hidden code. Just drag and drop, allowing your whole operations team to create, manage and adapt visual flows.

Find out more about our Intelligent Automation software, here.

Tracsis, the AIM-listed provider of software and services for the traffic data and transportation industry, has made significant progress in FY16. Revenues for the year to end of July were in excess of £32m, 26% up on the prior year, with all parts of the business contributing well including the recent acquisitions.

As expected, Tracsis performed even more strongly in the second half of its financial year than it did in the busy first half – a period that saw two acquisitions, a strategic investment and a disposal (see 'Smart' moves for Tracsis in H1). According to today’s trading update, H2 revenues exceeded £18m (H1: £14.3m) and profitability was also stronger in the second half.

For the full year, ‘adjusted’ profit and EBIDTA are expected to be ahead of the previous year, but ‘exceptional’ costs related to the acquisitions and disposal are set to impact statutory PBT. The business is debt free and highly cash generative though and cash balances remain strong despite the acquisitions (over £11m at the end of July compared to £13.3m at the end of FY15).

We’re pleased to see that both core parts of the business are performing well. The Rail Technology & Services Division reports good organic growth as it continues to expand its portfolio of products and consulting services, and gain traction in new markets outside the UK. And the Traffic & Data Services Division is benefiting from its expansion into event traffic management (via the SEP acquisition) and secured several significant new contracts in the second half.

As yet, Tracsis hasn’t seen any material change to business activity or demand for its products and services as a result of the UK’s EU Referendum decision. Whilst it’s too early to assess the long term implications of Brexit on the business, the management believes Tracsis’ focus on the niche verticals of traffic data and transportation provides good resilience to external influences such as Brexit.

Like TechMarketView, global consultancy PwC is anticipating big demand for cyber security consultancy services over the next few years as UK enterprises look to meet new regulatory requirements and shift more responsibility for data security and compliance management onto third party suppliers.

PwC will recruit over 1,000 technology specialists between now and 2020, helping the firm’s clients to formulate effective threat vulnerability management, predictive analytics (threat intelligence) and IT risk and resilience strategies.

The majority of new staff (600) will be sourced externally from current PwC associates and partners, but there are also plans to bring in 200 graduates. PwC’s UK IT Risk Assurance practice has created a dedicated three year graduate recruitment programme for example, due to start in September and designed to deliver the chief information security officers, chief data officers and chief information officers of tomorrow.

BT also said it would hire 900 new security recruits (170 of them graduates) in April whilst other SITS suppliers with big cyber security consultancy ambitions (including Accenture and Atos) have bought in suitable expertise through acquisition. PwC itself acquired Edinburgh based identity access management (IAM) consultancy Praxism in January.

Here at TechMarketView we do wonder whether the numbers will prove enough, or can be trained sufficiently quickly, to meet heightened interest in security consultancy and professional services in the short term though.

Compliance with the EU general data protection regulation (GDPR) becomes mandatory for any UK company storing or processing large volumes of information pertaining to EU citizens in May 2018, and TechMarketView expects to see a big spike in demand for regulatory advice and assistance in the meantime.

Subscribers to our SecureConnectViews research stream can access our latest report GDPR compliance unchanged by Brexit here.

Pre-Brexit uncertainty may well have contributed to a shift of Fintech fundraising to Continental Europe and away from London as Germany garnered 80% more funding than the UK in the three months to the end of June (according to a report from KPMG and CB Insights).

In terms of the larger deals, Finanzcheck, N26 and AEVI raised US$120m between them in Germany, while Tandem Bank, Azimo and Transferwise pulled in US$73m through London.

The Brexit decision is bound to cause some uncertainty within the London Fintech community which has benefited from the free movement of labour across Europe and the early indications are that this issue will not be resolved quickly or easily. Continental European governments are keen to exploit the opportunity by extolling the virtues of their respective locations, but Germany, and Berlin in particular, a pressing the best case. An entrepreneurial spirit within the city, along with cheap rents and a good nightlife appear to be the attractions for Berlin, which according to a study from EY, raised more venture capital start-up funding in 2015 than London. Frankfurt and Munich are also pushing their credentials as Fintech locations.

While the labour movement issue remains resolved, those Fintechs with an eye on European markets will undoubtedly think twice about building their businesses from London. However, most Fintech start-ups will have global aspirations and will want to be near the major global players as they develop their propositions, look for funding and build options for an eventual exit strategy. London is likely to remain at a significant advantage to any Continental European location. However, the sooner some clarity over the UK government’s strategy emerges, the better.

Subscribers can access more information in our reports on Brexit’s implications for Financial Services and on Fintech.

Belfast-headquartered Kainos, which IPO’d last year, is pushing further into the UK healthcare market following the successful implementation of its electronic patient clinical record (ePCR) solution at South East Coast Ambulance Service NHS Foundation Trust (SECAmb) and the launch of a new integrated care platform.

Kainos has been in healthcare since launching its document management system Evolve eight years ago and now has some 33 NHS Trusts (100 hospitals) as customers. It didn’t appear in our last set of rankings for the UK healthcare SITS market, but it’s growing rapidly in health and is not far outside the top 20 with a turnover of c£15m from the sector in its latest fiscal year.

Note also that Kainos is one of Apple’s mobility partners in healthcare and this was key to its recent win with South East Coast Ambulance Service. SECAmb is using Kainos’ Evolve software to capture electronic patient clinical record data at the scene of an incident and share it with receiving hospitals at the A&E department, clinic or ward. Like other trusts, SECAmb was keen to replace paper-heavy processes with digital ones and transform the efficiency of care. The trust’s Head of IT, Mark Chivers, said they picked the device first then the software, so Kainos’ partnership with Apple was all important. Kainos’ app runs on an iPad and works both on and offline.

We were also interested to learn that Kainos is bringing a new product, the Evolve Integrated Care Platform, to the UK market. The cloud-based platform is designed to enable GP, community care and acute electronic patient record systems, as well as some hospital departmental systems, to share information with each other and eventually with the patient and their friends and family too.

Both these products have a natural fit with government policy and the trends currently shaping the NHS IT market, making Kainos one to watch in the sector in the coming months.

Acquisition targets get younger every day: Microsoft’s latest purchase is two-and-a-half-year-old Genee whose AI-using scheduling tool with its natural language processing capability, went into pubic beta just a year ago. It is not destined to go any further as the service will be shut down in short order on September 1 as Genee co-founders Ben Cheung and Charles Lee join Microsoft.

It will be a small purchase for Microsoft (although terms of the deal were not disclosed) but is part of a significant development within both Microsoft and the software sector as a whole. Microsoft’s plan is to roll Genee with its technology into Office 365, as part of its broader‘Conversation as a Platform’ ambition (see here) whereby it foresees human language as the new UI layer, bots as the new apps, and virtual digital assistants (like Cortana) as "meta apps." The vision is to add some form of intelligent capability across the board. Genee will complement Microsoft’s June acquisition of Wand Labs which created natural language messaging solutions (see here) but is part of Microsoft’s bigger plans for chat bots and conversational intelligence.

Virtual digital assistants are beginning to pour out (e.g. from Apple, Google, Amazon, Facebook, Microsoft - and others) on the back of machine learning and AI adoption. This ‘wave of disruption’ is one of the fastest building and the reason it is so disruptive is because it has the potential to change how we interact with applications. As virtual digital assistants are only the starting point for many AI/machine learning uses, suppliers need to learn how to surf this particular wave quickly.