Altran Completes the Acquisition of Aricent

/ March 23, 2018/ Altran, Aricent, HCL Tech, M&A (large, with revenues above $50m)

We have commented in many aspects the planned acquisition of Aricent by Altran. Obviously, Altran is making a bold move, with deep financial implications (notably a high net debt), and a huge integration challenge (around putting India at its center). We have discussed this several times.

The good news is that Altran has officially completed the acquisition of Aricent, and launched on the same day, its planned EUR 0.75bn capital increase to reduce somewhat the additional $2bn debt it has taken with the acquisition. Altran has launched the capital increase at a price of EUR 9.23 per share, which is well below its EUR 13.9 stock price before the announcement. The stock market in Paris has reacted somewhat negatively with a 3% decline in share price.The market cap of Altran (EUR 2.1bn) is now much lower than that of Alten (EUR 2.6bn).

This is not as bad as it sounds: stock markets are clearly in negative territory those days, with news of commercial war initiated by the Trump administration. On the positive side, the EUR to USD rate remains solidly in the 1.20 to 1.25 range and puts the cost of Aricent somewhat lower, to EUR 1.7bn.

As several financial analysts have put it: the move makes sense. The risk now lies in execution, and analysts are concerned with the lack of visibility around the organic growth of Aricent, pre-acquisition. We should get more information on this with the Q2 2018 financial and the investor day in June 2018.

From our perspective, if executed well, the deal provides Altran the capability of working on an equal basis with high-growth high-profit Indian vendors. There is an urgency: HCL Tech is in hyper-growth thanks to its IP partnership deal with IBM and has deep pockets, and high ambitions. We are guessing HCL will be close to being as large as Alten in our 2018 revenue rankings.

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