Modis Comes Into the Light with Akka
Akka Brings Light to Little-Known Modis
Modis came into the light two weeks ago when Adecco announced the acquisition of Akka. Modis is a decently large IT services firm with 2020 revenues of EUR 2,179m. It is little-profitable with an adjusted EBITA margin of 5.7% (2019: 6.3%). Like everyone, the company faced headwinds in 2020, with revenues down 9% in 2020 (2019: -3%).
Modis Currently Is An IT Service Staffing Business
Modis operates in three businesses within IT services: consulting and systems integration (“Tech Consulting”), staffing/body shopping (“Tech Talent Services,” and training (“Tech Academy”). We estimate that non-permanent staffing represents ~55% of revenues. Hiring constitutes 5%. However, “outsourcing, consulting & other” is approximately 40% of revenues and is significant. Therefore, Modis is mostly a staffing/staff augmentation business. It relies on 3,000 “internal” employees and a network of 30,000 “colleagues, consultants, and associates.” This explains its low margin. Nevertheless, the Modis has specialized IT services capabilities. Examples include cloud & infrastructure (including service desk and network monitoring), application support and maintenance, analytics, and AI. Modis, then known as Ajilon, had made several acquisitions in this space.
Modis is not a total newcomer to ER&D. It has engineering capabilities for aeronautics, train, and automotive clients. It had identified industry 4.0 as a key focus area. With Akka, Modis now has scale in this space, as Akka has a background in manufacturing engineering/industrial IT, with Renault as one of its first clients.
Modis is One Of Adecco’s Two Growth Engines
Despite Modis’ moderately attractive financial profile, Adecco has faith in it, which, together with Talent Solutions/LHH, form Adecco’s engine for growth. In comparison, Adecco’s core interim business is much larger (EUR 15,669m in revenues), more cyclical (-16% in revenues), and has lower margins (adj EBITA margin of 3.8% and 4.5% in respectively 2020 and 2019). Clearly, interim and staffing bring low margins, and Modis and LLH are more profitable businesses. This explains why Adecco is willing to pay EUR 2bn (enterprise value) for Akka.
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