Public tenders to boost Poland's already roaring IT market

By bne IntelliNews June 11, 2007

Patricia Koza in Warsaw -

Poland's IT market is growing at an annual rate of about 13%, nearly twice the country's sizzling first-quarter rise in GDP of 7.4%, which was the highest since the country's transformation to a market-based economy 18 years ago.

What's more, this market is booming despite complaints from the biggest industry players that government ministries have delayed holding tenders for big-ticket IT projects such as the modernization of the border guard or providing a medical-services register for citizens.

The lack of such tenders, in fact, was one of the key drivers responsible for the recent wave of IT mergers in Poland. ABG started the process by acquiring Ster-Project in 2005, then went on to pick up Spin last October. With the merger wheel set in motion, Asseco acquired Softbank, Infovide acquired Matrix and ComputerLand Polska merged with Emax to become the number-two integrator in the country, after Prokom. All these newly merged firm are now in the process of consolidation.

"Those significant players merged to realize economies of scale," Pawel Olszynka, head analyst at the research firm PMR Consulting in Krakow tells bne in a telephone interview. "And most of the mergers make sense."

Now the industry abounds with rumours that Prokom, Signity — the new name for ComputerLand — or perhaps ABG-Ster Project could be swallowed in turn by major European integrators that are closely watching the Polish market.

"They're waiting until the consolidations are finalized," reckons Olszynka. "These [Polish] companies are now very attractive, especially with regard to public administration tenders."

Public contracts

Signity, 30% of whose business in 2006 was in the state sector, believes the long drought of public contracts is just about over. EU funding will provide €1bn more this year than last, most of it for projects in the state sector, with IT spending taking the lion's share.

"The problem was there were promises and promises for years, and now the money is flowing but it's difficult to explain why you have the money and you're not spending it," says Piotr Kardach, vice president of Signity and the former president of Emax. "So public officers are starting to open tenders; we are expecting new tenders this year and the beginning of the next."

Signity is also targeting the state-owned energy sector, from which it already derives 20% of its business. An extensive consolidation of state assets into four energy super-groups will open up opportunities to bid for providing systems to standardize and implement IT tools, an area where Signity is dominant in Poland.

Other IT companies have sought to grow through takeovers of foreign companies. Assecon, for example, has set up a subsidiary in Slovakia and plans to also open units this year in the Balkan states, the Czech Republic and Romania.


ComArch VP Rafal Chwast

But not all of Poland's top integrators have sought growth through M&A. The venerable ComArch of Krakow has relied on organic growth alone to post annual growth rates of 30% for the past five or six years.

"Organic growth is much safer," explains company vice president Rafal Chwast. "Lots of companies are for sale, but the prices are at such a level that they cannot deliver value for shareholders."

Another risk, he says, is that, "You never know what you're buying. It may happen you pay for people who leave half a year after the merger."

ComArch's strategy is to provide both proprietary software and services, rather than providing services based on third-party software. "That way, you have a better margin," says Chwast. "Last year we increased our [earnings before interest and tax] margin from 6% to 9% - that's pretty substantial."

Unlike its domestic rivals, ComArch focuses on Western Europe and the US, a strategy put in place in 1999 that is yielding substantial results. Export sales accounted for 20% or revenue in 2006, with 60% of foreign sales in Europe — divided almost equally between "old" and "new" Europe — and the rest in the US. Among its Western customers are Germany's T-Mobile, Auchon and BP.

"More and more we compete with the global players like IBM and HP," says Chwast. "And the competition is very, very difficult because they are much larger than we are. But in the IT business, the key is the quality of the product."

In that area, ComArch must be doing something right.


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