Telefónica Tech bolsters Microsoft relationship with BE-terna buy

Telefónica has high expectations this year for its acquisitive Tech division, and Microsoft looks set to play an important role in fulfilling them.

The company on Monday announced it has acquired another Microsoft reseller, BE-terna, for up to €350 million. BE-terna provides Microsoft cloud solutions in Germany, Austria, Switzerland, the Adriatic region and the Nordics. It employs more than 1,000 staff and pitches itself as a digital transformation specialist.

“As a next-gen IT services integrator our priority is to build and become a leader and continue to deliver differential growth both organically and inorganically. BE-terna will reinforce our cloud capabilities in Germany and enable us to enter into other Central European and Nordic markets,” said José Cerdán, CEO of Telefónica Tech, in a statement.

Telefónica Tech encompasses the Spanish incumbent’s cybersecurity, big data, IoT and cloud activities. Since it became operational in early 2020 it has been scaling up rapidly in all those categories through a combination of in-house product development; partnering its way into different industry verticals; and acquisitions.

To help expand the enterprise cloud services side of the business, Tech has forged relationships with hyperscalers, the strongest of which appears to be with Microsoft. The two strengthened their global strategic partnership in February 2020 alongside the announcement of Microsoft’s new data centre region in Spain. That deal included a co-development agreement covering Telefónica’s entire operating footprint.

Evidence of that collaboration emerged in December last year when they announced plans to offer hybrid cloud solutions for public administrations in Spain that want to leverage cloud, but have to be careful about the security and privacy of their data. Less than a month later, Telefónica Tech agreed to become a distributor of Microsoft Teams Essentials, a standalone version of Microsoft’s collaboration software for SMEs.

On top of that, Tech has been snapping up Microsoft resellers to bulk up its enterprise services offering in several key markets. In addition to BE-terna, last July it spent around £340 million on Cancom UK&I, rebranding it as Telefónica Tech UK&I. This year, in March, it spent £175 million on another UK Microsoft partner called Incremental. These two deals have turned Telefónica into one of the biggest Microsoft partners in the UK.

“As the pandemic forces a faster move to the cloud and a greater need for digital transformation, Microsoft stands as one of the preferred partners for these projects,” noted Cerdán on Monday, adding that “BE-terna is a leading European player in this field”.

Telefónica said the deal, which is expected to close in the coming weeks subject to regulatory approval in Germany, is all part of its grand plan to become “a leading player in tech services in Europe”.

It appears to be going well so far. In Telefónica’s most recent financial presentation, Tech reported revenues of €346 million in the fourth quarter of 2021, up 50.3 percent year-on-year. For the full year, revenues grew 33.6 percent to €944 million. CEO José María Álvarez-Pallete said on the earnings call that he expects Tech’s revenue to continue to grow strongly this year. Telefónica didn’t provide any detail on operating income, but it is probably safe to assume that being a relatively new division – one that is growing its top line at a rapid rate – profitability will come later.

Before anyone gets too carried away though, that €944 million – while impressive – is still a relative drop in the ocean for a company that turned over nearly €40 billion last year. Tech is one of the five pillars of Telefónica’s current strategic plan, and is pitched as one of its key growth engines going forward. And while it is moving in the right direction, Tech still has a way to go before it makes a meaningful impact on the group’s overall finances.