Capgemini to acquire Altran for €5.0bn: early thoughts
A major surprise!
Capgemini is to acquire Altran, for €5.0bn, including €3.6bn in cash and Altran’s net debt of €1.4bn (gross debt of €1.8bn). The company has already secured the 11% stake in Altran that Apax Partners holds and will rely on the financing, on its €1bn cash position and a €4.4bn bond issue.
In the ER&D space, Capgemini brings €€0.4bn revenues and 7k employees. The company has a background in the aerospace industry in France and Germany (Sogeti High-Tech/Transiciel), and nuclear engineering (through Euriware), and also in software product development (IGATE acquisition). In total, Newco will have combined ER&D revenues of €3.4bn and 54k consultants, including 21k nearshore and offshore.
In total, Newco will have 2018 revenues of €16,113m in 2018, an adjusted EBIT margin of 12.1%, and a headcount of 258k. The manufacturing sector will become
Capgemini expects in the next three years, revenues synergies of
The deal is a surprise for many reasons:
- The timing is odd, with Altran still recovering from the financial turmoil that followed the Aricent acquisition. Altran was gradually executing on its Aricent promises
- Is Capgemini’s offer attractive? It represents a 22% premium over Altran’s last trading day. Altran is solidly-growing (+8% at CC/CS) and has a low double-digit adjusted EBIT margin (12.1%), has achieved the transition to India thanks to Aricent, and is the global ER&D leader. From a financial perspective, Capgemini values 30 times the 2018 net result of Altran (PER) in our calculation. This is a high multiple with however the financial performance of Altran not showing its true potential
- We were expecting Capgemini to continue acquiring in digital (cloud, security, analytics, and AI, UX, and e-commerce), not in ER&D
- Also, Capgemini had its net debt of €1.2b, which we thought, signaled that Capgemini was not considering a large acquisition.
Capgemini brings digital skills, in particular, security, AI and analytics that Altran needed to strengthen. Altran brings, on top of its ER&D activities, a jewel, Frog, that Capgemini had started to develop with its Idean acquisiton.
Finally, there might a personal element in this transaction: the CEO of Capgemini, Paul Hermelin, will be leaving the company mid-next year. We are guessing that he wanted to go with a final transformational acquisition. To be fair, Mr. Hermelin is the best CEO of all non-Indian vendors we have seen in the IT services industry, for its work in transforming Capgemini to an India-centric firm with digital capabilities.
We will, of course, comment further on this important news!