Is There A Space Left for ER&D Pure-Plays? Part 1: Consolidation of the Market

/ September 6, 2021/ Unknown

Outsiders Are Consolidating the ER&R Pure-Plays

Is there a space left for ER&D pure-plays? We think the question is relevant. Indeed, the ER&D market is an attractive market with solid growth prospects and has attracted outsiders. Growth prospects are solid (with the situation in commercial aviation somewhat better than planned).

Private Equity has been active with Expleo, Belcan, CDI Corp, GlobalLogic, and at least partially Quest Global. Apart from GlobalLogic, these firms will be back on the market soon. Also, the Akka transaction demonstrated that buyers took long-term prospects and discounted short-term turbulences.

Valuation Multiples for ER&D Pure-Plays Are High

Valuation multiples are high: Hitachi acquired GlobalLogic for USD 9.6bn. The Hitachi transaction is costly, even for a jewel such as GlobalLogic. LTTS has the highest market cap (USD 6,250m) ahead of Alten (5,700) and AFRY (3,900). These three firms are likely to consolidate the market. LTTS is majority-owned by Larsen & Toubro (L&T). Alten and AFRY have reiterated their intention to remain independent. However, even Alten, with its USD 2.7bn in revenues, does not have the scale to compete with outsiders for large transactions.

The question mark remains about privately-owned businesses. We expect AVL, IAV, Ferchau, and Segula to remain independent. However, a founder or family may be tempted to divest with the current market valuations. We assume not. In this case, there remain few consolidation opportunities among our top 24 pure-play rankings. More than ever, bolt-on acquisitions are likely.

Large Acquisition Opportunities Are Uncommon

(2020, USDm)
CommentCurrent Market Cap
1AltranN/RAcquired by Capgemini in 2020 for an EV of EUR 5bn.N/R
2Alten2,660Unlikely to be sold.
The founder is the largest shareholder with a 14.9% stake and wants to keep the company independent.
3AFRY2,064Unlikely to be sold.
AFRY acquired Pöyry in 2019, strengthening its infrastructure, industrial IT, and energy engineering business.
5Akka1,715Being acquired by Adecco for an EV of EUR 2bn.
Akka suffered from its high net debt resulting from the Data Respons acquisition in digital and its high dependency on the automotive and commercial aeronautics sectors.
6Expleo1,036Likely to be resold in the next two to three years, especially in the light of the pending Akka transaction.
Acquired by PE Ardian from Assystem in 2017, valuing the firm EUR 550m.
8Bertrandt975Unlikely to be sold.
Porsche is the largest shareholder with a 29% stake.
9GlobalLogic920Acquired by Hitachi for a stunning USD 9.6bn in 2021.N/R
10SII746Unlikely to be sold.
The founder and management are the largest shareholders with a 35% stake.
11EDAG742Unlikely to be sold.
The founder and family are still the largest shareholders, with a 70.7% stake.
12LTTS735Speculations about a combination of LTTS with LTI and Mindtree.
Conglomerate L&T is the largest shareholder with a 75% stake.
(LTM in H1 2017)
Acquired by Altran in 2018 for USD 2bn.
The acquisition increased Altran’s net debt, causing investor concerns and sending the stock down, eventually leading to the Capgemini acquisition.
16Cyient556Unlike to be sold.
Cyient is on a turn-around. Promoters are the largest shareholder (with a 23.5% stake).
17QuEST Global450Sale by PE likely in the mid-term.
Founders and management recently sold a portion of their stake to PE ChrysCapital, True North Managers, and others for USD 150m to purchase minority stakes in the Company. Other PE, Bain Capital, Advent, and GIC, remained shareholders.
18Umlaut420Acquired by Accenture for Industry X
19Tata Technologies320Recurring speculations about an IPO or a sale.
Tata Motors owns a 74.4% stake in Tata Technologies.
Acquired by Arrow Electronics in 2018. Arrow is a distributor of electronics components. The acquisition of eInfochips brought product engineering capabilities and a specialty in chip design and connected product engineering.N/R
BelcanN/AUnlikely to be sold in the short term.
Acquired by US PE AE Industrial Partners in 2015. The timeframe (five years) suggests AE Industrial Partners should resale Belcan soon. However, the crisis in civil aeronautics will probably delay.
Harman Connected ServicesN/AAcquired by Samsung as part of a larger Haman deal in 2017. Samsung acquired the automotive and consumer electronics vendor to strengthen its automotive presence.N/R
CDI CorpN/ASale likely in the short-term.
Acquired by US PE PE Industrial Partners in 2017. CDI is an engineer staffing firm operating across sectors. We expect a sale in the coming years, now that the staffing industry has exited the 2020-21 crisis.
AusyAcquired by Randstad for EUR 420m.N/R
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