Akka Makes Large Acquisition in the US with PDS Tech. In Line with its Clear 2022 Strategic Plan
Akka Technologies intends to acquire Irving, TX-based PDS Tech, in line with its Clear 2022 ambition plan to develop into the US market.
PDS Tech had 2017 revenues of USD 260m, an operating margin reported by a financial analyst to be 3%, and a headcount of 2.6k. The company services clients mostly in the aerospace industry, including Boeing (its largest client, representing 20% of revenues), and Gulfstream. Akka is paying EUR 100m for PDS Tech, according to the same financial analyst. In spite of PDS Tech’s low margins, Akka believes the acquisition will be accretive from year one.
Investor response to the acquisition was very positive, with Akka shares up 10%! Akka now has a market cap of EUR 1.4bn, reflecting real momentum in Euronext Paris.
I have to say though I have mixed feelings about this acquisition PDS Tech is a recruitment and staffing firm, with a network of agencies across the US, and places 10k contractors each year. Akka will want to change the business model of PDS away towards projects. The last time I remember an ER&D vendor buying a staffing firm was the 2011 acquisition of an oil & gas staffing firm, MPH by Assystem. At the time, Assystem has the ambition of changing the business model of MPH towards work packages and fixed-price contracts. The oil & gas crisis came in, and MPH has been a drag on Assystem’s results.
One will argue that circumstances are different this time and that aerospace has long-term potential growth. Also, Akka with its 2012 acquisition of MBtech has proved it has a long-term strategy for turning around firms. And indeed, Akka is well aware that it is buying a staffing firm.
Still, I expect revenues to decline initially in the US while the reinvention of PDS Tech will be impacting its margins. In summary, PDS Tech is a bit of a mouthful for Akka, I think.