Capgemini Finally Becomes the Number Engineering and R&D Sevices Vendor

/ April 1, 2020/ Altran, Capgemini, France, India, M&A (large, with revenues above $50m)

Capgemini Has Secured 98% of Altran

The Stock Market meltdown resulted in an unexpected outcome: Capgemini secured 98.2% of the shares of Altran, with investors rushing to get EUR 14.5 per Altran share. Capgemini will now launch a squeeze-out procedure.
One month ago, Capgemini had barely secured the majority of Altran’s capital and was ready to keep Altran listed for another two years. Since then, stock markets have crashed, and the Capgemini offer became an opportunity to sell Altran at decent multiples.

With Altran soon delisted, Capgemini will get cost and revenue synergies faster than expected one month ago. The company has reiterated it targets pre-tax run-rate cost synergies of EUR 70-100m and revenue synergies of EUR 200-350m, both within three years.

Altran Has A Diversified Profile

The acquisition comes, of course, at the worse possible time of the past twenty years, with the ER&D market set to drop in Q2, with both the aerospace and automotive markets rapidly decreasing their ER&D spend. The good news is that Altran has diversified its client base, notably thanks to Aricent, to the high-tech (semiconductor, technology, and software products) and the telecom sectors. We expect telecom ER&D spending to remain somewhat resilient in 2020, while high-tech should behave better than automotive and aerospace. Altran also brings 18,000 employees in India and other nearshore countries that can accommodate the client demand for offshoring. Capgemini also brings in this space a significant delivery network footprint with 125,000 employees in low-cost countries.

Capgemini now has pro-forma revenues of EUR 17.3bn, and an adjusted EBIT margin of 12.4% with a track record of improving it year after year. The company currently has a headcount of 270,000, which is respectable, even by Indian standards.

Capgemini’s Challenge Will Be to Reduce its Net Debt

The next challenge of Capgemini will be to reduce its net debt, which will jump from EUR 0.6bn to EUR 5.2bn. The company will be benefit from the lower than ever interest rates. We expect Capgemini will stop paying dividends in 2020 (EUR 0.3bn in 2019) and stop stock buy-backs, and finance most of the acquisition through bonds.

The timing of the acquisition is unfortunate, but Capgemini is in a decent financial position to go through the tough times ahead. Aiman Ezzat, who will take over as CEO in May, probably wished he would have an easier start. His dual background, as CFO and head of operations, will help.

Share this Post