Alten Accelerates its M&A Activity

/ September 30, 2020/ Alten, Financials, France, M&As (small under $50m in revenues)

Alten Accelerates its M&A Activity

Alten will accelerate its M&A activity in 2020. This is one of the tactical changes that the company announced during its H1 2020 results presentation. The company is also shifting its commercial effort to financial services, energy, and life science, and slightly accelerating its offshore deployment.

Alten typically adds 1,000 engineers a year through M&A activity. In 2020, the company will probably double this amount to 2,000. With the crisis, acquisition valuation multiples have lowered, from 10 to 14, the EBIT. Alten is ready to pay multiples in the range of 6 to 8.

It is also increasing the size of its acquisitions, which have ranged from headcounts between 100 and 300. The company has its sight on a firm whose headcount is in the 300-1,000 range. France is back on the agenda. For the past few years, Alten has focused on M&As outside of its domestic market. With the crisis, the company is now open to absorbing French competitors.

Alten certainly has the funding to conduct M&As in 2020. The company had a net cash balance of EUR 224m. The company froze its dividends in 2020, while the lack of organic growth also preserved its Capex, and avoiding a large scale restructuring effort. Alten has decided to prevent lay-offs in its two large operations: France and Germany, while conducting small restructuring plans in Sweden and the UK.

Alten Has 2,000 Engineers on the Bench

We think the decision is bold. Alten has 2,000 engineers on the bench, 1,500 of which in France (Toulouse, Sophia Antipolis, and Nantes) and 500 in Germany (Hamburg). The company plans to reduce this bench over the next 12 months. However, this effort will impact its profitability. Alten has guided the market that H2 adjusted operating margin in H2 will be lower than in H1 (6.1%). This is the first time in many years that Alten will not reach a 10% adjusted EBIT margin.

A Tactical Diversification in IT Services

Alten has announced another tactical move. The company wants to sell the capabilities of its 2,000 engineers on the bench to other clients. It is targeting the financial services, energy, and life science industries, providing IT services. Its aeronautics clients have a background in embedded systems and software development and limited activity in mechanical engineering. Alten offered little details on how it will transition product engineers to IT services. On a strategical level, this is a wrong move: the IT services industry is competitive and adopting offshoring at scale, even in France and Germany. We’d rather have Alten diversifying its client based in the US towards the high-tech sector and acquiring in Ukraine/Russia. Still, we understand Alten’s necessity to reduce its bench.

Offshoring Ambitions Remain Limited

Alten is, as always, cautious about offshoring. The company has 1,500 engineers addressing non-local clients in India, Morocco, and Romania. It wants to double this headcount in the next few years. Alten is also ruling out a large scale acquisition like Aricent by Altran. Despite its USD 3bn market cap, the company does not have the financial funds to spend USD 2bn in an Aricent-like investment. One cannot blame Alten for being cautious about net debt: Altran lost its independence because of its high debt, resulting from the Altran acquisition. And Akka is in trouble suffering from its high net debt and exposure to the aerospace and automotive markets. Alten remains a very pragmatic firm that is well-managed but hardly exciting.

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