UPDATED: Accenture’s ambitions in ER&D services

/ September 30, 2019/ Accenture, M&As (small under $50m in revenues)

Last year, we had commented about Accenture’s ambitions in the ER&D space, through its Industry X.0 unit.

During its FY19 earning calls, the newly-appointed CEO of Accenture, Julie Sweet, highlighted that Industry X.0 is one of her priorities, focusing on digital manufacturing.

Ms. Sweet plans to acquire revenue representing 200 bps in revenue growth (therefore, approximately USD 875m) in FY20. Accenture will favor tuck-in acquisitions, having acquired 33 companies in DY19 (for an average of USD 25m in revenue per company). In FY19, Accenture spent USD 1.2bn on M&As and we expect the firm to slighly increase this amount this year.

Ms. Sweet ruled out any large acquisition, although she mentioned Accenture could afford a large acquisition if it wanted to. And indeed, we estimate that Accenture has a net cash position of approximately USD 5.5bn.

UPDATE: Several days after the FY19 earnings call, Accenture announced the planned acquisition of Nytec Inc., an ER&D services vendor headquartered in Kirkland, WA. Nytec has a headcount of 250 and is active in IoT, around connected products across industries, whether B2B or B2C. One of the main clients of Nytec is British-American cruise operator Carnival.

Nytec has its own digital center, in its headquarters in Kirkland, where it provides design, prototype development, and support services for manufacturing clients. Accenture will integrate the center in its own Industry X.0 network of centers (“Forges”). The company highlights it now has ~20 Forges, which is a higher number than we expected, with Europe well covered. END OF UPDATE

Accenture certainly has shown consistency in its capabilities, having in the past eight years focused on “The New” (digital, security and cloud), with a heavy focus on growing Accenture Interactive. Accenture Interactive is now a USD 10bn business!

So far, Accenture has been a relatively slow acquirer, with only one firm in the digital manufacturing space and several traditional product design and embedded systems M&As.

Also, with its capabilities in product design (Fjord), security, cloud, and analytics, Accenture has the right service portfolio mix that ER&D clients require. We think one should not underestimate the power of Accenture in the ER&D space.

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