Rackspace looks set to be acquired by private equity firm, Apollo Global Management,following much speculation that a buyer was looking to take the hosting firm private. At $32 per share, the cash deal is valued at $4.3bn.

In our view, this is the right move for Rackspace. For some time we have described the ‘middle ground’ that has become Rackspace’s home - nestled between its hyperscale neighbours on the one hand (including Amazon Web Services (AWS) with its stellar growth), and the established IT services providers on the other.

Rackspace is being squeezed as it attempts to shift away from its legacy business in hosting – see Rackspace warns of hit to UK business in H2. Out of the limelight, it will need to make some serious decisions about how it improves its growth and position – notably as a managed cloud player providing the crucial wrap-around services for cloud (e.g. AWS public cloud). In the UK, Rackspace plays against a variety of players (Pulsant, IBM and other besides) in cloud migration/management. The recent acquisition of Adapt by Datapipehighlights the demand for such capabilities but also the lack of scale experienced by most providers.

Apollo lost out to Blackstone India in the race to buy Mphasis, and also made an unsuccessful bid (losing to CSC) for UK BPO player Xchanging (see here). However, this time it emerges triumphant and indeed we believe there is some good potential if Apollo gets Rackspace's evolution right.

There are only ten days to go before our fourth annual ‘Evening with TechMarketView’, sponsored by NetSuite, which takes place in London on Thursday 8 September 2016.

We're looking forward to seeing so many TechMarketView clients and friends at 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.

If you'd like to join us and haven't booked a place yet we should still be able to squeeze you in - you can book by clicking here.

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:

Fujitsu has been part of the furniture at Highland Council for the last 17 years. Indeed, if you look back at the UKHotViews archives, you’ll find that it won a new five-year contract in 2009, having been the incumbent for more than eleven years (see Fujitsu finally bags Highland Council renewal). The deal was worth £66m over the five-year period. In 2013, it was awarded another 18-month extension. But it has been fighting it out with Bangalore-headquartered Wipro for a new contract and, it appears, it has lost out at the final hurdle (though official confirmation won’t come until 12^th September after the usual legal standstill). According to the council, the decision came down to financials, with Wipro offering the biggest savings, and was no reflection on Fujitsu’s past performance.

Perhaps unsurprisingly, the local press, like Herald Scotland, has jumped on the fact that Wipro, “specialises in offshoring”. The local concern is that jobs will be lost to India. Fujitsu employs 120 people on the contract and the local business community has estimated that “Fujitsu’s presence generates £4.5m for the Highland economy”. Certainly, Wipro is promising a significant reduction in annual expenditure. It is mooted that the council will pay £57.5m over seven years, which would indicate an annual saving of £5m a year compared to Fujitsu’s 2009 deal (though Herald Scotland indicates that IT expenditure will be down by £11m). However, procurement documents indicate that both Fujitsu and Wipro promised the council “significant workforces based in the Highlands”. And, indeed, Wipro already has offices in Aberdeen and East Kilbride.

Indian-based firms have struggled in the UK public sector, and particularly in local government. TCS has, in revenue terms, been the most successful, having bagged some significant deals. But it doesn’t seem to have won any large contracts since its Security & Industry Authority (SIA) success in 2013 (see TCS to replace BT at SIA). Others, like Cognizant and Mastek, have been successful in winning smaller deals via frameworks such as the Digital Services Framework. In local government, most noteworthy was TCS’ contract with Cardiff City Council. But, importantly in the context of this latest deal, we understand the Cardiff contract was delivered onshore. Though, some offshore delivery may make sense for Wipro in terms of delivering the savings, it may not necessarily make sense politically. There may be other ways in which Wipro plans to deliver the promised savings.

You must have been a hermit not to have read the acres of news about the EU ruling that Apple owes c£11b in tax to Ireland. The basics are that Ireland is ‘alleged’ to have offered Apple a sweetheart deal on corporation tax in return for creating jobs in Ireland. As this will all go to an appeal, best not to offer a view on the legals of the case.

But the moral case seems pretty clear and straightforward. Indeed, every country- including the UK – offers sweetheart deals to attract inward investment. Conversely, every corporate – particularly the biggest global players – exploits national tax regimes to their own benefit. Indeed many shareholders would suggest that it was the ‘duty’ of the officers of any company to minimise the tax paid.

But, of course, it is not a victimless game. The UK is the second largest market for Apple yet it actually pays minimal corporation tax here. Any UK HQed company has to pay its full share of UK corporation tax. So Apple immediately takes an advantage. It matters because taxes pay for all the good stuff that we are rather proud of here – like the NHS and mostly free education.

Apple is not alone. All global companies play the tax minimisation game. We all suffer as a result. We need sweeping changes to our tax regime. Except that we cannot implement those changes alone. It needs global resolve

There can’t be anybody who now in any doubt about our views on ARM’s takeover by Japan’s SoftBank. The FT today quotes our views as does the Evening Standard– See ARM deal opens floodgates for foreign bidders.  

Today 95% ARM shareholders who bothered to vote voted to accept the deal at £17 per share – a 43% premium on the close before the deal was announced. Sure, it is a ‘handsome’ price but as I was correctly quoted by Madhumita Murgia in the FT saying “We have very deeply questioned the ARM takeover by Softbank, we would have much preferred Arm to stay as a UK-quoted FTSE 100 company, but clearly that isn’t going to happen,” said Richard Holway, chairman of TechMarketView, the industry analyst.

“I’ve had so many emails from ex-CEOs that have questioned why it needed to happen. It’s a great shame, they could have got whatever backing to do whatever they wanted to, they have so much support’.

This is the full text of my response to Nick Goodway of the Evening Standard.

“As you know, I am very sad about this as I consider ARM to be the best tech company the UK has produced. Certainly in the last 20 years. Whatever 'promises' made, they will now be a subsidiary of a highly indebted foreign company. Although a base might well be maintained in Cambridge, all the corporate decisions will be made abroad. The UK/LSE will lose yet another UK quoted company with the attendant loss for accountants, lawyers, brokers, PR people - even analysts and newspaper journalists.

Ever since I started my analysis company in 1986, the takeovers have practically all been one way.  So I have to say that EVERY quoted ( and private) UK tech company is vulnerable. All the way from Imagination to Sage to MicroFocus to Aveva etc with everyone in between. The devaluation of the £ makes UK companies even more attractive. The US tax rules, making it difficult to repatriate overseas profits, also encourages US companies to acquire in the UK.

I guess I am resigned to it. Conversely, as the UK is 'the best place in the world' to setup and ScaleUp a tech company, knowing you will get an 'exit' is no bad thing. Maybe that is our destiny - as an incubator of tech companies and serial entrepreneurs. There are probably worse fates!”

I stand by every word quoted. I also make these comments as a long term ARM shareholder who would have been very happy to continue ARM shares.

Reading-based TrustID is the latest TechMarketView Company Snapshot looking at innovative and disruptive technology SMEs in the UK SITS market.

TrustID is of real interest as an identity validation specialist, whose software helps public and support service organisations quickly and accurately validate documents like passports, visas and driving licences for regulatory compliance.

Identity verification/validation is a hot (and consolidating) space (see GB Group acquires Idscan), as enterprises seek ways to corroborate people are who they say they are – something increasingly critical for connecting the digital and offline worlds.

TrustID operates in a well-defined space providing electronic document scanning and validation software for clients who have high numbers of staff often across multiple sites, such as in the NHS, care homes, leisure, retail and support sectors. Customers include the likes of Oxford City Council, Bernard Matthews Farms, Kings College Hospital and The Savoy hotel.  

Subscribers to TechMarketView’s BusinessProcessViews research stream can read the analysis here. If you haven’t taken a subscription yet, Deborah Seth will be happy to help.

The launch of a new product, and a beta one at that, is not usually the subject of a HotView but Arria NLG’s is slightly different. It’s not the product alone but its integration with SME accounting tools that sparks attention.

The product is Recount, a SaaS-based AI and Natural Language Generation (NLG) reporting tool. It is notable because through NLG and AI it brings the capabilities of a financial analyst to SME accounting functions, so they can spot trends and forecast like the big boys. Specifically, it brings this capability to Xero and Intuit: it has been integrated into Xero in Australia and New Zealand, and will be available for Xero and Quickbooks in the USA by December. Sage is conspicuous by its absence. More integration partners are promised and we hope Sage will be one of them; along with broader geographic spread of Recount.

Its association with Xero and Intuit are part of Arria NLG’s much needed move to broaden its customer base and channel to market (it has also partnered with automation specialist Genpact), which was made necessary when the bottom fell out of its business with Shell in 2015 on whom it had a “near singular focus”.

This is part of the broader move towards Intelligent Applications – mainstream applications that embed machine learning and AI into their core. Much of the activity is under the radar but is widespread nonetheless, from IBM and HPE software, to Salesforce and Microsoft, plus developments like ignio and Decision Moments from TCS and Mindtree respectively and a host of developments from Accenture. And this is just a small sample of market activity. Arria NLG demonstrates that advanced techniques are not the preserve of large, big budgeted enterprises with in-house expertise but are affordable and accessible - and useful – for smaller operations too. 

Ten months after it was first announced, and despite critics saying Michael Dell wouldn’t be able to fund it, EMC will merge with Dell on September 7th. Having recently received regulatory approval from the Ministry of Commerce in China, and got shareholder approval back in July, it’s now full steam ahead on the $60bn deal.

The new enlarged company will be named Dell Technologies, and will be home to several brands including EMC Information Infrastructure, VMware and Pivotal.

Michael Dell’s intention is that this new even bigger technology giant will give buyers the range of products and services to enable the next chapter of IT investment. For example, hybrid cloud, the software defined data centre and digital transformation. Dell has already started re-shaping itself ahead of the merger, notably with the sale of its services business (what was the acquired Perot business) to NTT Data. But there will be much more to do. Taking the two companies into private ownership will allow Michael Dell to do some serious work on the combined entity, we hope addressing some of the legacy and slow-growing areas.

During these times of huge technology disruption it seems going private is order of the day. Rackspace has just announced it is to be acquired by Apollo Global Management in a bid to re-position and re-ignite growth, while media reports have suggested private equity investors have been taking a close look at HPE - see Private Equity close to buying HPE?

I guess you would call Euxton Group a ‘growth company’ on account of the fact that they are an e-commerce business for the gardening and landscaping market. That, and the claim that revenues have been growing at over 30% for the past three years, of course. Euxton trades under the Hedges Direct, Bee Friendly Garden Plants, Impact Plants and Best4Hedging brands.

Lancashire-based Euxton has just been subject to a £2.75m buy-in and management buy-out (BIMBO) orchestrated by London-headquartered, tech and infrastructure-focused private equity firm, Foresight Group. The investment was the first to be made by the Foresight Regional Investment Fund, a £38m (to date) fund launched in December last year to support SMEs based in the North West of England, North Wales, and South Yorkshire. The funding will be used to expand Euxton’s product range and move into overseas markets.

Who knows, soon they may be selling tulips to Amsterdam!

As I lament losing ARM from the FTSE100, the FT reports today 'It will be replaced by one of Smurfit Kappa, Micro Focus, Croda, Aberdeen Asset Management, Scottish Mortgage Investment Trust and Rightmove'.

I didn't realse Micro Focus was so close to FTSE100 status.It now has a market value of £4.6b and its shares have risen 26% YTD. Really great achievement! And, of course, they are one of the very few UK HQed tech companies that have been buying big in the US.

In 2010, Capgemini ousted CSC from Anglian Water (see Capgemini snatches Anglian Water from CSC). Now, with that deal ended, Capgemini has managed to retain its relationship with Anglian, albeit in a very different form. This time it will work alongside two partners – Atos and Cognizant– under a £100m, eight-year, IT alliance contract. The contract will begin in 2016 and there will be a review in Year 4. It doesn’t look as if Anglian has set out to reduce its annual IT expenditure with this deal; the value of the previous Capgemini deal was unrevealed, however, the last-signed CSC extension had a similar annual value to this latest arrangement. Rather, it appears to be taking the route of finding efficiencies so that savings can then be reinvested in innovation.

We have to assume that, for Capgemini, this deal is worth less annually than the previous arrangement, as it shares the spoils with the other partners. However, it appears Anglian was determined to pursue an alliance model so this is probably the best outcome that Capgemini could have hoped for. Anglian has modelled the new arrangement on the way it has worked with its construction partners for more than a decade. And while, the company describes Atos, Capgemini and Cognizant as “international leaders in digital services”, it is clear that a key reason for choosing the trio was for their display of collaborative behaviours. Anglian refers to a “mutual gain principle” meaning that each organisation has been given strong incentives to collaborate and build a reservoir of knowledge and skills. Contractual models in other industries don’t always translate well to the IT world so we will just have to wait and see if the trio can make this work.

Amazon may rule the ‘anything and everything’ e-commerce market, but there’s still plenty of room for niche players, such as Notonthehighstreet.com, the portal offering ‘alternative’ gifts and products from small suppliers and retailers.

Headquartered in Richmond (or as it is apparently known, ‘Silicon Upon Thames’), Notonthehighstreet.com has just raised a further £21m in a Series E funding round led by Munich-headquartered technology and media company, Hubert Burda Media. Existing investors Index Ventures, Industry Ventures and Eight Roads Ventures also participated. This brings total funding so far to around £60m.

Notonthehighstreet.com has enjoyed double-digit sales growth since its launch in 2006. However, losses have been mounting too, reaching £5.5m in the year to 31st March 2015, on revenues of £37.6m, representing the commission on the sale of goods valued at £155m.

Another case of Notintheblackyet.com.

Call centre software provider EvaluAgent is operating in a market that is adapting to the omni channel challenge, with an offering that takes a different approach to call centre optimisation through its focus on workforce engagement alongside workforce efficiency.

Technology matters, but contact centre success also relies on the people and processes employed and this is what the EvaluAgent team understands. It joins the dots between employee engagement and the impact on customer experience. It makes for a differentiated value proposition, and one that Atos for one, recognises. EvaluAgent is a part of the Atos Safe Harbour programme and signed a new two-year contract with the provider earlier in 2016.

EvaluAgent has a strong proposition in its own right but is also positioned as a good partner for BPS and HR providers. The latest in the TechMarketView series of Snapshots looking at up and coming SME providers examines its proposition and potential. Eligible subscribers can download the analysis here.

On 28th June 2016, TechMarketView Director, Georgina O’Toole, participated in a panel debate at Fujitsu World Tour 2016 in central London. The Public Sector panel discussion was entitled “Delivering Digital Best Practice in Government”. The panel debate was led by Fujitsu’s John Newton, charged with the company’s strategy and business development in public sector, and also included Deidre Hardy, Head of Fujitsu’s Business Development Team within the company’s Digital Business, and Dr Rob Langley, CIO of Cafcass (Children & Family Court Advisory & Support Service—a Fujitsu client).

As part of her introduction to the panel debate, Georgina offered her opinion on the progress to date and the future direction for digital in Government; the role of the Government Digital Service; and the environment in which departments are likely to be operating. Here, in this PublicSectorViews research note - 'TechMarketView at Fujitsu World Tour 2016: UK Government digital progress - we provide a transcript of Georgina’s introductory speech. If you are not yet a PublicSectorViews subscriber, please contact Deb Seth to find out how to access the note.

A full transcript of the event, including the introductory remarks from the other panel members, will be available on the Fujitsu World Tour website.

There is only a week to go before our fourth annual ‘Evening with TechMarketView’, sponsored by NetSuite, which takes place in London on Thursday 8 September 2016. We're looking forward to seeing so many TechMarketView clients and friends at 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.

If you'd like to join us and haven't booked a place yet we may still be able to squeeze you in - you can book by clicking here.

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.

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 sponsored by:

Spooked investors sent Salesforce shares down c8% in after market trading. Light Q3 guidance was a main reason but a slight miss on deferred revenue plus the mass of acquisitions during the year to date (costing c$3.5bn vs. c$60m during the whole of the previous financial year) will have played their part too.

In terms of the numbers, Q217 revenue (to 31 July 2016) was up 25% to $2.04bn, just ahead of expectations of a 24% increase. But despite 26% growth to $3.82bn, deferred revenue was shy of the $3.88bn expectation and this is (probably) the first time the company has missed on expectations for this metric.

The US showed a dip in performance at the end of Q2, which will have been a factor but Salesforce is facing more competitive pressure overall and this will be having an impact. That’s likely to be the fundamental reason for the share price drop - investors betting on ever accelerating growth have been scared by the comfort blanket of deferred revenue not meeting their expectations. Add in light Q3 guidance of revenue in the $2.11bn-$2.12bn range vs. expectations of $2.13bn and the share price drop was the result. However, the company put in net profit of $229.6m vs. a year ago loss of $852,000.

Since February this year Salesforce has racked up a big acquisition bill of c$3.5b, which includes the $2.8bn it paid for Demandware. It would have been much larger if its bid for LinkedIn had won through (Microsoft won that bid with its $26bn offer). Acquisitions are part of Salesforce’s DNA because its growth ambitions call for incessant expansion outside its core areas. It next big move is into machine learning and AI, with a major step forward to be revealed next month at Dreamforce in the form of its Einstein AI CRM platform (see here). While this is a smart and necessary move, it’s also a costly one.

Paysafe has made big strides recently, with the Skrill deal essentially doubling its size. However, it has also targeted a number of smaller M&A deals to build key capability in specific geographies and service areas.

Last year, in addition to Skrill, we saw the integration of the US-based Meritus Payments Systems and Global Merchant Advisers operations as well as the acquisition of the FANS Entertainment mobile platform development business. Early in 2016 they also bought MeritCard Solutions in the US. The North American business constituted 29% or revenue in H1 2016, while online gambling drove 45% of revenue (and gaming 7%). See here for our comment on H1 results.

This drumbeat of smaller acquisitions has continued with today’s announcement of the purchase of Montreal-based Income Access Group, for CAD$40m (approximately £23m). This business is focused on gaming and gambling (as well as social gaming and options market trading), with a suite of software to monitor the effectiveness of adverts and marketing strategies through both online and mobile channels. These assets will provide a useful addition to the Paysafe portfolio, but there is extra value in this business due to its extensive network of over 25,000 affiliates and partners. Paysafe will be looking to market its broad portfolio of payments processing, digital wallets and pre-paid services into this network of affiliates as well as driving economies of scale and reach.

Although this is a small deal, it is another sign of this company’s aggressive push into the big league and of its intention to continue its rapid rate of progress.

Compared to the stunning post-BREXIT performance in July, August was a more subdued month. Perhaps everyone was away on the beach without much thought of shares.

As your can see from the table, NASDAQ, the FTSE100 and TechMark100 had gains of <1%. The other UK Indices we track also had more modest gains. Only exception was Fixed Line Telecomms – basically BT! – which fell again by 6.3% as BT itself was down 6.5% (18.1% YTD).

The BREXIT effect is quite easy to see. The companies listed outside the UK and denominated in $ have done well – boosted by the £’s devaluation. UK HQed companies making the majority of their revenues outside the UK have similarly done well. But those – like BT and Capita (although Capita  did recover by 7.8% in Aug, they are still down 14.3% YTD)  – which have predominately UK revenues have suffered.

Amongst the UK SITS stocks that we track, Computacenter fell 11.6% (15.1% YTD) on disappointing H1 results. See – German growth offsets Computacenter UK revenue declines in H1. Microgen was off 8.3% although still showing an impressive 68% gain YTD.  We were impressed with Microgen picking up speed in their interim results announced in July.

Main global faller was Wipro– down 11% (15% YTD). The IPPs have had a pretty torrid time of late. All the more reason to read Anthony’s OffshoreViews!

Gainers in the +10% category were mainly the smaller companies which seem to have been particularly volatile this year. If we listed all the ‘tiddler’ gainers one month, we’d list them all as ‘Tiddler’ losers the next!  Exception was INSTEM which put on 10.1% (+13.8% YTD). See – Healthy growth continues at Instem.

As the UK comes back to their desks at the end of the school holidays, I suspect that share performance in Sept will give a more realistic idea of sentiment post BREXIT. To date it’s been a bit of a phoney period with no idea of what Brexit actually means and therefore everyone seemingly ignoring it and getting on with their hols. So, now back to the real world

Net fee income (gross profit) at the UK & Ireland operations of UK-headquartered international staffing giant Hays managed to hold steady across the year (to 30th June 2016) at £272m after a weak final quarter. UK&I operating profit improved by 14% as management cracked the whip.

UK public sector remained a challenge, with net fee income (NFI) down 4%, dragged by Local Government and Healthcare. Private sector NFI grew by 2% and now represents 72% of Hays’ UK&I business. As expected City-focused NFI fell by 3%. IT staffing NFI was up by 3%.

Across the group, Hays finished the year with headline revenues up 10% to £4.23b. Gross margins eased from 19.9% to 19.1%, but operating margins held flat at 4.3%.

Hays CEO Alistair Cox alluded to ‘increased concern over the economic outlook’ for the UK and ‘increased uncertainty’ over the BREXIT vote (see Hays: ‘Too early to assess BREXIT impact’). However, he pointed out that they have seen no evidence of any impact elsewhere.

Hays is a big ship to steer, and under the circumstances I’d say it’s ‘steady as she goes’.

It appears that the deal is done, and control of Bangalore-based, Mphasis, is now safely in the hands of its new private equity owners, Blackstone (see Blackstone gets go-ahead for Mphasis deal).

I suppose Meg Whitman must be breathing a sigh of relief that HPE’s ‘renegade’ offshore services subsidiary is now someone else’s problem – indeed Mphasis remains listed in Mumbai, with nearly 40% of the stock in public hands. Still, it was an opportunity squandered.