French ER&D Vendors’ Journey to the U.S.: Similar Timing, Diverging Strategies
Altran, Alten, and Akka have in the past year accelerated their expansion into the US ER&D services market. It is striking to see how they have taken different routes.
Altran swallows Aricent and gets scale in the US telecom market
Altran made the largest acquisition in the ER&D industry, both regarding spending (USD 2bn in cash!), and concerning acquired revenues (approximately USD 600m), with CA-based Aricent.
With this transaction, Altran has taken a massive level of net debt that implies no further acquisition in the next two years. Still, Aricent brings quite a number of strengths to Altran, e.g., presence in the US, an Indian offshore model, a core strength in telecom, and also in software and system product engineering, and in product design, and an IP partnership with IBM similar (but smaller in scale to what of HCL Tech).
Time will tell if the telecom ER&D market is back to growth. We still getting mixed messages, but it seems it is.
Akka acquires a mid-sized staffing business
Akka has taken the exact opposite route to that of Altran. The company is set to acquire PDS Tech, a firm headquartered in Irving, TX, with half the size of Aricent. Akka is paying a low price for PDS Tech (a financial analyst reported that Akka was spending EUR 100m), as PDS is little-profitable.
PDS Tech is a recruitment and staffing business, has a network of agencies across the US, and a client base in aerospace and manufacturing, with Boeing as its largest client. Akka will be looking to expand the business model to more attractive and more profitable activities. The business model transformation will take years, in all likelihood, and have its ups and downs. The positive side of this transaction is that this is an inexpensive acquisition.
Alten continues to deploy its business model in the US
Between these two very different strategies, Alten has its way. The company continues to implement its business model based on small acquisitions, applying financial discipline to price multiples, and targeting a critical mass of 2k engineers in the US. Once it has critical mass in the country, Alten will deploy its model based on a technical office to help to bid for fixed price projects and work packages, and its HR engine to recruit local talent.
Interestingly, Alten has among its US businesses, its Calsoft Labs business, which relies on an India offshore model, and which provides telecom engineering and IT services. In spite of its asset, Alten seems more eager to develop an onshore-based presence.
Which strategy makes more sense?
Altran’s move is bold, exciting, and is financially the riskiest of the three. Akka’s approach is the riskiest on an operational side but will have little impact on the company’s financials. Alten’s strategy is unexciting but, given its track recording in delivering year after year, is probably the soundest. Now, if Alten were to make use of its underutilized Calsoft Labs asset, this could really be powerful for the firm.