Bertrandt (Modestly) Shifts its Portfolio to Digital with Philotech
Bertrandt’s First Acquisition in Years with its Portfolio in Mind
Bertrandt announced its first acquisition in years: Philotech will help the firm to (modestly) shift its portfolio. The company had an estimated EUR40m in revenues and is headquartered in Taufkirchenn, close to Munich, Germany. It provides electronics, embedded software, and cyber-security services. Philotech services the aerospace, automotive, and telecom sectors. It is primarily present in Germany, although it has offices in France, Spain, and the UK.
Philotech Will Strengthen its E/E Unit
With this move, Bertrandt wants to strengthen its digital unit, Electrical systems/Electronics (E/E). EE accounts for 28% of Bertrandt’s revenues and is its only unit currently growing. In FY21 (ending September 30, 2021), EE was up 10%.
In contrast, its two other business units, Digital Engineering and Physical Engineering, were down by 12% and 14%, respectively. With Philotech, E/E will have pro-forma revenues of EUR 280m, far from Digital Engineering’s EUR 409m. Bertrandt will need to acquire more for E/E.
Bertrandt Suffers from its High German Automotive-Centricity
We think Bertrandt has several challenges. The company, like its German competitors, struggled well before the pandemic. It suffered from German OEMs, as early as 2018-29, reducing their R&D spending. In FY19, Bertrandt’s revenue growth had slowed considerably to +3.8%. Its operating profit margin suffered too (5.7%).
In calendar 2021, Bertrandt did not rebound. Despite a favorable comparison basis (calendar Q1-Q3 2020 est. revenue decline of 20%), the company had flat growth in Q1-Q3 2021. Bertrand is underperforming its competitors. EDAG Engineering, which also has a background in automotive engineering, had its Q1-Q3 2021 revenues by an est. +8%.
Bertrandt suffers from its little-diversified client base. Germany still accounted for 87% of revenues in FY21. Non-automotive was ~10%. In comparison, EDAG derived 45% of its revenues outside of Germany. With that in mind, the acquisition of Philotech slightly diversifies Bertrandt’s client base outside of automotive. A small step in the right direction!