Atos Makes Surprise Acquisition in PLM Services
An Unexpected PLM Services Acquisition by Atos
This is a move we did not expect: French IT services firm Atos is strengthening its ER&D services capabilities with its acquisition of a PLM services specialist, Processia. Processia is headquartered in Laval, Canada. The company is a Dassault Systemes VAR. The company mostly provides software product-related services, from consulting to implementation and managed services. Processia helps its clients implementing and migrating to Dassault’s 3DExperience software. However, it is not a provider of product design and engineering services. And Atos, by acquiring Processia, is staying close to its IT services roots.
With Spring, Atos Is Specializing Its Service Portfolio by Sector
Atos gained PLM services capabilities with the 2010 acquisition of Siemens IT Solutions and Services. As a result, the company has mostly Siemens PLM skills in Germany and also PTC expertise. Then came Spring, a verticalization effort that Atos rolled out in 2019-2020. With Spring, Atos has made its sales and marketing activities more sector-based. The company is now expanding its Spring initiative to its service portfolio.
The manufacturing sector holds a special place in Atos’ client base. It is its third-largest vertical with its largest client, Siemens, and significant German customers, e.g., Bayer, BASF. Central Europe accounts for ~50% of its manufacturing revenues. Unsurprisingly, Atos’ client base is heavy on automotive (27% of revenues) and process & chemicals (18%). Moreover, outside of Germany, Airbus is a major customer.
The priority of Atos is, therefore, to expand its client base to the U.S. and China. This is where Processia fits in: with its Canadian presence, it addresses the local market. We think its true potential lies in providing a nearshore service to U.S. clients.
Bold Ambitions for the Manufacturing Sector
Atos has bold ambitions for its manufacturing vertical. The company wants to grow by 5% annually. Aligning its service portfolio will play a key role, along with sales execution. In the meantime, Atos faces a sharp decline in the manufacturing sector revenues: revenues were down by 9.3% at cc in full-year 2020 and still down by 6.7% in Q1 2021. While automotive is on a gradual rebound, commercial aviation (Airbus and Safran) has no short-term growth prospects. Growth prospects for CPG are, however, promising. We think other industries, such as process, and industrial equipment, will get better with the improved economic conditions. As a result, Atos has decent growth prospects for its manufacturing sector.
Its next challenge will be to almost double its manufacturing operating margin, from 6% to 10%. Atos has pointed it is renegotiating several little-profiting contracts. We suspect Atos’ low margin in manufacturing comes from outside of engineering and R&D services. The issues lie in its IT infrastructure services business, probably from a few large deals. For Q1 2021, Atos announced it would restructure its German IT infrastructure services unit in its latest financial communication. The company is taking action. This is good news: higher margins from manufacturing will drive more investment in the portfolio.