DXC accelerates Dynamics 365 consolidation

There are a lot of changes sweeping through the Microsoft Dynamics services partner community, as integrators and consulting firms look to piggyback on the Redmond giant’s march up the value chain.

This week, DXC announced that it has snapped up two specialist partners focused on Microsoft Dynamics 365 (the cloud-based ERP and CRM proposition): Australian firm Sable37, which has 225 employees and also develops IP on top of Dynamics for sectors including construction and retail; and eBECS, a UK-based Microsoft partner with £35m sales, in which DXC (via CSC) made a strategic investment back in 2016.

Both acquisitions will be rolled into DXC’s Eclipse division, which pools together close to 2,500 Dynamics specialists worldwide. This unit was built around CSC’s $300m acquisition of Australia’s UXC in 2015 (which rolled up several Dynamics partners under the Eclipse brand), and has been subsequently bolstered by the purchase of US-based Tribridge (740 employees) in 2017.

PAC recently undertook an in-depth look at the Microsoft services partner community in Europe, and rated DXC as one of the “best in class” leaders in providing Microsoft SaaS implementation and integration services in the region. But DXC is not the only IT services vendor aggressively ramping up its Microsoft practice.

Avanade, Accenture’s 30,000-strong Microsoft services wing now clocks in annual sales in excess of $2bn. It recently announced the launch of a new advisory practice in Europe, designed to extend its reach into more strategic client engagements around topics such as change management and cyber security.

Fellow consulting giant KPMG bought Dutch Dynamics 365 specialist devtalk/AXelia in November, while Hitachi has set up a separate division (Hitachi Solutions) to incorporate the string of specialist Microsoft integrators it has acquired in the US and UK. HCL has led the charge of the Indian vendors into the Dynamics services space through the $46m acquisition of Power-Objects.

There is also a buoyant community of specialist players that are driving consolidation at a regional level. In the US, Stoneridge Software recently consolidated its position as one of the Midwest’s largest Microsoft partners with the purchase of DFC. In Europe, Denmark’s Columbus Global (2,000 employees worldwide) has increased its revenue by 50% on the back of its acquisition of Sweden’s iStone. Another Swedish player, Acando, recently bought Munich-based Dynamics 365 partner Anywhere.24.

So why is the Microsoft Dynamics 365 services market so attractive?

Firstly, the product set is enjoying impressive growth. Microsoft’s overall Dynamics products and cloud services revenue rose by 10% in the most recent quarter of its fiscal 2018 (Q2). However, sales specifically from the cloud-based Dynamics 365 were up by a whopping 67%.

This is largely driven by Dynamics 365 moving up the value chain, beyond its heartland of CRM and finance in the midmarket, and into larger accounts, where it is becoming a credible alternative to SAP and Oracle.

Microsoft recently signed up a deal (size not disclosed) with engineering giant United Technologies Corp (annual revenue $57bn) to implement Dynamics 365 and Azure. Defence communications contractor L3 Technologies ($9.6bn annual sales) uses Microsoft Office 365 for US Government and Dynamics 365 Government.

In PAC’s view, we are now seeing the kind of consolidation take place in the Dynamics 365 partner space that has already ripped through the Salesforce and ServiceNow partner communities during the last couple of years.

A more in-depth look at the likely consolidators in the Microsoft SaaS services supplier landscape in Europe is available here.