Alten Now Positioned on Mid-Sized Acquisitions
Alten Using Mid-Sized Acquisitions to Counterbalance the Pandemic Impact
Alten had told investors it would increase the size of its applications and target mid-sized competitors. The company now targets firms above 200-500 consultants, well above its 80-200 traditional target.
The company believes it has the financial means to make more significant acquisitions than in the past and can raise as much as EUR 1bn in debt. Alten also wants to counterbalance the impact of the pandemic through M&As. Finally, the company also intends to acquire at lower valuation multiples.
And indeed, in 2020, Alten acquired competitors representing 2,850 engineers and revenues of EUR 240m. 2020 was Alten’s most active year in terms of M&As, despite the pandemic. In Q4 2020, Alten acquired SDG Group, an Italian data, analytics, and AI specialist. SDG brought 950 employees and was Alten’s most significant acquisition by headcount.
Two Mid-Sized Transactions Offshore
The company has similar ambitions for 2021 and suffered from travel restrictions in H1 2021 to finalize the transactions. However, this week, Alten unveiled two deals: with a Chinese/US firm and an Indian vendor.
The first target is a Californian firm that has a Chinese delivery model. It is significant with its 1,900 consultants and revenues of EUR 68m. It operates in software development (embedded, real-time, and communication software), servicing telecom and automotive firms. The company services US clients as an offshore partner and the local market.
Alten’s second target is an Indian firm that provides product engineering and embedded software services. While the Indian firm has half the size of the Chinese one (with 930 consultants), it derives only €11m in revenues. This Indian firm targets the local market and has an income per capita of ~€11k.
A Shift in Alten’s Offshore Strategy
We think both acquisitions mark a shift in Alten’s offshoring strategy. Alten now wants to develop its global delivery network to address the US market. Previously, the company relied more on bringing a local presence, acquiring small T&M businesses. Alten now has 2,000 consultants in the US, somewhat short of its 3,000 onshore consultant target. However, the company is finding larger firms to acquire in India and China and good skill levels.
Including the two acquisitions, Alten will have, in our estimate, approximately 3,000 consultants in China and 5,500 in India addressing offshore and local projects. This is the beginning, and Alten has room for growth in the countries.
Along with developing its offshore presence, Alten is on a journey to unify its delivery network onshore. The company wants to deploy similar methods and tools to address pan-European project opportunities. The transformation is long-lasting, with Alten having already worked on this topic for three years. Alten highlights its delivery transformation helps it win transnational deals.
Do Not Expect An Aricent-Like Acquisition
Further mid-sized M&As are likely in 2022. Do not expect Alten, however, to make an Altran-like acquisition of Aricent. The company is well aware that the $2bn Aricent transaction weakened the financial position of Altran, eventually leading to its take-over by Capgemini. The Akka-Adecco transaction is a similar story, with Data Respons, the acquisition that was one too many.