WT Business Beat

By Nick Wakeman

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Buy one, get one free

The announcement by EDS Corp. on Tuesday that it would purchase Saber Holdings is arguably the most interesting merger and acquisition story in the state and local market this year. The Plano, Texas-based systems integrator paid $420 million cash for the Portland, Ore., software and services company in a move to boost what has seemed in the past to be a portfolio heavily weighted toward health care. Although EDS is practically the heavyweight champ of the Medicaid business, its other offerings have not gained near as much traction as its state health care work.

The back story to this acquisition is worth noting. In March 2006, Saber announced that it was purchasing the state and local unit of Convansys Corp. of Framingham, Mich. When I read the acquisition announcement this week, I immediately thought: "Aha! EDS is getting two companies for the price of one." In other words, EDS was really getting Convansys and Saber at the same time. Equally compelling, are the software and solutions EDS will gain through the acquisition address areas of state government that receive a regular pipeline of federal funding. So just as with Medicaid, EDS is positioning itself to win federally funded state work related to human services, unemployment insurance and election reform.

Interestingly, Saber picked up Covansys' state business last year for what seems like a bargain price of $40 million. Also worth noting, Covansys' state business was substantial enough to get it into the $100 million or more annual sales category on Washington Technology's annual Who's Who in the State and Local Market issue published each March.

And now the big question: Whose business in the state and local market is EDS likely to muscle in on after this acquisition? I'll hazard a guess and say that executives at Accenture Ltd., BearingPoint, CGI Group, IBM Corp. and Maximus Inc. were all keenly interested in this minor, but significant earthquake in the market.

Posted by William Welsh on Nov 15, 2007 at 7:22 PM


Reader Comments

Mon, Nov 26, 2007 Mary Kurkjian NM

I am scratching my head to understand the price of this transaction. In March of 2006, Saber bought the ailing S&L business of Covansys for $40 M. At the time it was stated that the annual revenues for the new piece of business was $75M, to be added to Saber's annual revenues of $25 M. Yet Saber's 2006 revenues were $57 M, as reported in the Inc. 500. (and note they did not break into the WT Who's Who list published in March 2007.) So 18 months later, EDS buys Saber's $57 M business for $420 M, or seven times last year's revenue. This doesn't sound like a bargain to me!

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