Computer Sciences Corp., a technology provider associated mainly with government services, said it expects its recently announced deal to acquire of Continuum Co. to account for as much as 20% of its future revenues.
The news indicates how aggressively the $4 billion company plans to target the financial industry with its services. If the acquisition were finalized today, Continuum would account for about only 10% of El Segundo, Calif.-based Computer Sciences' revenues.
Experts said a push into banking is logical, given that the Continuum acquisition brings with it the former Hogan Systems Inc., a maker of widely used core banking software that Continuum bought in March.
With Computer Sciences' experience in outsourcing, the Hogan software could be used as part of a bank service bureau offering. About 130 banks worldwide use Hogan software.
"The government business is going down and they're looking for something to supplant that," said Ira Morrow, research director for financial services at the Gartner Group of Stamford, Conn.
"In one fell swoop, they've gotten into the outsourcing business in two of the fastest-growing areas - banking and insurance."
Mr. Morrow pointed to the "rich premium" Computer Sciences is paying for Continuum as proof of the company's desire to enter the financial industry servicing arena.
Computer Sciences is to pay $1.5 billion in shares. Continuum reported pro forma revenues reflecting the Hogan acquisition of about $490 million in 1995.
According to Van B. Honeycutt, Computer Sciences' president and chief executive, the company already is vying with Electronic Data Systems Corp. for an outsourcing contract with J.P. Morgan & Co.
Mr. Honeycutt said financial services is a natural niche for Computer Sciences' consulting and management services.
"We believe we've got the whole services front covered," Mr. Honeycutt said.
Mr. Morrow said the acquisition will put Computer Sciences in a prime position to compete with the likes EDS, International Business Machines Corp., Alltel Information Services Inc., and Fiserv Inc.
"We look at this acquisition as giving us significant strength in insurance and retail banking," Mr. Honeycutt said.
"We believe both those areas show significant growth."
Continuum and Hogan do business with 43% of the financial companies in the Fortune 500, according to Glenda Holmstrom, vice president of corporate marketing for Continuum.
Although it's "not evident how they'll run the relationship," Mr. Morrow said, Computer Sciences has a track record of letting its acquired units run independently.
He mentioned Computer Sciences' 1988 acquisition of the Index Group as an example.