M&As: Many Tuck-In Acquisitions and Cognizant ESG

/ April 14, 2021/ Accenture, ÅF Pöyry / AFRY, Automotive, Belgium, Brazil, Cognizant, Denmark, Finland, Germany, M&A (large, with revenues above $50m), M&As, M&As (small under $50m in revenues), Manufacturing IT, Softvision, Sustainability, Sweco

Many M&As in Q1, Mostly Tuck-In Acquisitions

ER&D vendors continue to be very active in M&As, with many tuck-in acquisitions. AFRY is now in full acquisition mode with six transactions in 2021 YTD. Competitor Sweco has also accelerated with four transactions. Accenture has made an unusual transaction by taking over a manufacturer of industrial automation and robots in Brazil for Accenture Industry X. Finally, Cognizant acquired a significant German automotive ER&D vendor, ESG.

Accenture Buys An Industrial Automation Manufacturer

Accenture has entered the industrial automation and robot manufacturing space with Brazil-based Pollux. Pollux is headquartered close to Sao Paulo, has a headcount of 300. Pollux has clients mostly in South America and services mostly pharma, automotive, and food companies. The company has expanded its automation and robot portfolio to computer vision and other AI technologies.

Many digital manufacturing vendors have reported a low-growth industrial automation market. AI and autonomous logistical vehicles are driving demand rather than pure robots. We think Accenture is acquiring Pollux for its service expertise rather than for its products. Expect, therefore, Accenture to shift its portfolio to emphasize new AI-based use cases and cobots. We will follow up on how Accenture transitions Pollux.

Cognizant Strengthens its German Automotive Engineering Presence

We had reported the acquisition trail that Cognizant has done for its software product and application development unit Softvision. With ESG Mobility, Cognizant is gaining more traditional E&R capabilities. ESG Mobility has a headcount of 1,000 and services German automotive clients. ESG Mobility brings capabilities in electrical and electronic systems and connected vehicles. It has emerging capabilities for autonomous and electric vehicles. With ESG, Cognizant acquires a well-known brand in the German automotive engineering market. However, ESG was sub-scale with its 1,000 employees. Cognizant brings a sales and delivery powerhouse that will help develop ESG much faster than standalone.

We knew the sale of ESG was likely in the next few years was likely, as one unnamed PE fund had acquired the firm in 2015-16. However, the timing is odd, as the German automotive ER&D market is only on the verge of a rebound, with many RFPs but delayed award decision-making. ESG will still operate with much smaller operations in data & security and defense. The company will now have a headcount of 1,000.

Meanwhile, the Swedish engineering service vendors AFRY and Sweco have accelerated tuck-in acquisitions. Sweco tends to concentrate its investments around architectural services, urban planning, and now sustainability consulting. The company regularly acquires competitors with revenues under €10m. YTD, Sweco has proceeded to four transactions. This is as many as during full-year 2020.

AFRY Has Made in Q1 2021 As Many Transactions as in Full-Year 2020

AFRY, with its six transactions in Q1 2021, has acquired twice as much as in full-year 2020. AFRY’s challenge, compared to Sweco, is that it has a wider scope of services. AFRY, unlike Sweco, is present in product engineering services and digital manufacturing/industrial IT. AFRY also wants to further specialize its infrastructure engineering capabilities with capabilities such as light and acoustics. It needs to shift its energy engineering portfolio away from fossil fuel power plants. Finally, its product engineering services business relied too much on automotive clients: expanding it to new sectors is a priority. This puts more pressure on AFRY to acquire. The good news is that AFRY has a geographical footprint that much more Nordics-centric than Sweco. This will help the company in its M&A activities.

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