In Europe, IT leaders are being pushed to perform a balancing act—transform the enterprise while keeping one eye on the budget. The outlook for European organizations in 2023–2024 is much like their American and multinational counterparts. As mentioned in Avasant European IT Spending and Staffing Benchmarks 2023/2024 report, the year’s theme might best be described as “keep calm and carry on.” It resounds well for some of the European IT majors, a few struggling for survival, ridden by debt burden, missteps in modernizing, and sluggishness in leveraging low-cost offshoring.
More precisely, with its share price declining over the years, Atos faces immense challenges. Atos’s journey to financial stability has been fraught with setbacks, but the persistence of the leadership to continuously look for solutions and alternatives does stand out.
The French government’s offer to buy strategic parts of Atos, including Eviden, buoyed the company’s shares, underscoring the delicate balance between financial pragmatism and national interests.
At this juncture, in the high-stakes battle for survival, Atos, the troubled French IT company, has made a pivotal choice. The company faced two competing bailout proposals, each with a vision for its future. As we dissect the decision-making process, explore the implications, and shed light on the strategic maneuvering that led to Atos’s selection, key factors emerge, such as the chosen consortium aims to uphold Atos’s existing two lines of business while harnessing the capabilities of Eviden and Tech Foundations. Their objective to provide continued support to clients with a comprehensive range of services spanning infrastructure, cloud, artificial intelligence, applications, and cybersecurity resonates well with the strategy of Atos leadership.
David Layani, Atos’s top shareholder, spearheaded a Onepoint consortium consisting of Onepoint, Butler Industries and Econocom. It presented a comprehensive rescue plan focusing on the key elements:
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- Equity Injection: The Onepoint-led group committed €250 million in fresh equity, signalling unwavering support for Atos’s revival.
- Debt Restructuring: A bold move involved converting €2.9 billion of Atos’s debt into shares, easing the burden and paving the path to recovery.
- Leadership Transition: Founder David Layani, aged 45, assumes the mantle of CEO, steering Atos through turbulent waters.
Atos leadership also had the option from Czech billionaire Daniel Kretinsky, who proposed an alternative vision:
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- Radical Debt Reduction: Kretinsky’s approach targeted aggressive debt reduction, advocating for selling off Atos’s digital business—a move that could have reshaped the company’s core identity, impacting client serviceability.
- Risk and Reward: While promising a leaner balance sheet, Kretinsky’s strategy carried inherent risks, leaving Atos’s digital assets hanging in the balance.
After arduous negotiations involving banks, creditors, shareholders, and the French government, Atos’s board made its choice and the Onepoint-led proposal emerged as the preferred option. Here are the reasons stated:
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- Stability and Continuity: Onepoint’s plan preserves Atos’s integrity, avoiding a disruptive breakup. French ownership remains intact, safeguarding national interests.
- Massive Dilution: Existing shareholders face significant dilution, a necessary sacrifice to secure Atos’s future.
- Corporate Alignment: The chosen proposal aligns seamlessly with Atos’s corporate interests and garners broad support from financial creditors.
Atos is now entering a critical phase. By July 2024, the company aims to finalize agreements with creditors. The Onepoint-led consortium’s infusion of new equity and debt conversion provides a lifeline. However, challenges do persist as Atos grapples with a debt amounting to nearly €5 billion. The massive dilution reshapes Atos’s equity landscape, necessitating careful communication and investor confidence.
Atos’s bailout saga epitomizes the challenges faced by legacy IT companies in an evolving digital landscape. The primary concern for the clients would be the continuity of the services from the group, with it being a leading provider in Europe, including in mission critical areas such as high-performance computing (HPC). As the company treads this tightrope, the Onepoint-led lifeline and potential government-backed initiatives offer hope. However, execution remains the ultimate test. Should the clients explore alternative providers? The confidence of Eviden teams and continued flowing deals, such as the contract to construct Europe’s very first Exascale supercomputer as part of the French-German collaboration in October 2023, showcases the faith of customers, and we feel should assuage the concerned investors. Also, in our discussions with Atos clients, for the most part, they have not seen these financial issues impact service reliability or performance. That is a tribute to the solidity of Atos service delivery capabilities. Amid these uncertain times, one certainty is emerging: Atos leadership is keeping calm and continuing to work, assuring clients of service continuity. With this financial infusion, Atos’s long-term success hinges on the resilience of its leadership, effective communication, and continued focus on reliable service delivery. We feel this does position the group for future stability, and our recommendation is for Atos clients to continue to be watchful and carefully assess the company’s service performance for any short-term impact.
By Anupam Govil, Managing Partner, Avasant, and Praveen Kona, Associate Research Director, Avasant.