Alten Updates Its 2016-2019 Objectives. Remains Consistent on Strategy.
As part of its 2017 earnings, Alten reiterated the core principles of its business model, which include onshore delivery, geographical expansion, ER&D services, and a balanced client base. Alten made a point that it is not altering its business model, at a time when Altran has become much more India- and US-centric, and when Akka just announced its intention to double scale and develop its offshore base.
Alten is focused on reaching critical mass in each country (at least 1k engineers for the small countries, and 2.0k for the US, and China). Once it has reached this objective, the company it has scale to set up a local technical office and move away from staff augmentation services, to T&M, work packages, and fixed priced projects. To Alten, T&M, and work packages are a differentiator.
To support this goal, the company is using M&As to accelerate growth. This is the priority for Eastern Europe (Switzerland included), North America, and China. In the US in particular, Alten is accepting to acquire firms with a low margin to achieve rapidly scale.
Alten also is making a point in sticking to its product engineering and manufacturing engineering capabilities, which provide 80% of revenues. The company derives 20% of its revenues from PMO, digital consulting, training, prototyping, and testing/certification, and wants to keep it that way. As Alten’s CEO put it “our core expertise are recruitment, our technical office, and our career management capabilities”. The company therefore rules out adopting the capex intensive business model of the likes of Bertrandt and EDAG, moving into IP, (Altran and the Indian ER&D service vendors).
Obviously, this strategy has worked for many years for the company. The company has consistently combined best-in-class CC/CS revenue growth with adjusted operating margin close or above 10% (among the 4As). The success of Alten shows in its headcount objectives: initially the company targeted 24k engineers by end of 2019. The new target for 2019 is 28-29k. During the 2016-2019, Alten will have added 10k engineers, including 4k from acquisitions.
So all perfect in the world of Alten? Almost. Offshore and nearshore delivery is an area where Alten is uneasy,we think. Its initial plan mentioned gaining a significant position in nearshore and offshore. So far, offshore is very much a work in progress: the company has 600 FTEs in India servicing US clients (mostly telecom). It also has some presence in Romania and Northern Africa.
Yet, we think that Alten is not pushing its offshore offerings, and has presence in low-cost countries for meeting supplier panel requirements mostly, and for accommodating specific clients. We’d like Alten to be more pro-active in this space. At the very least, the company is missing an opportunity, in the US, and increasingly in Europe. At worse, the company will not ready when the market shifts.