Cyient Completes Largest Acquisition Ever with Citec

/ August 27, 2022/ After market services, Cyient, Embedded Systems, Finland, M&As, Mechanical Engineering, Oil & gas, Technical documentation

Citec is the Largest Acquisition of Cyient

Cyient made its largest acquisition ever with Citec. Citec is headquartered in Vasa, Finland. The company primarily provides power plant engineering services. It is also involved in consulting, engineering turbo-machinery equipment (e.g., steam turbines, pumps, and compressors), and technical documentation. Citec had 2021 revenues of EUR 80m, an adjusted EBIT margin of 13%, and 1,2000 employees. Cyient is buying Citect on an enterprise value of EUR 94m.

Citec has improved its profitability in the past five years by lowering costs and growing its Indian employee (in Pune and Mumbai) to half its headcount. The company derives approximately 22% of its revenues from offshore.

Citec Lessens Cyient’s Client Concentration

This is Cyient’s largest acquisition ever and also a strategic one. Citec brings a client base in Finland and Europe overall. It also diversifies Cyient’s client base to power plant engineering, where it derived only USD 10m in revenues. In the past, Cyient suffered from its client concentration and reliance on the aeronautics industry.

Cyient has growth ambitions for Citec in gas (with LNG terminal engineering) and renewable energies, including hydro. The company highlights that renewable plants include gas backup engineering opportunities, which it sees as growing with the EU transitioning to renewables and investing in newer power plants. Finally, Cyient hopes to cross-sell digital services, such as smart factories and enterprise asset management, to Citec’s client base.

Cyient Needs to Primarily Focus on Cross-Selling

We have mixed feelings about this acquisition. It addresses one of Cyient’s challenges, e.g., its client concentration. However, the power plant engineering market is not an easy ride. Despite its long-term prospects in renewables, its growth has been bumpy. The wind farm industry is notoriously loss-making or, at best little profitable. The solar energy market offers more limited engineering opportunities. Gas plant engineering does provide more options, especially in Europe, in the wake of the Russian invasion of Ukraine, but it is government-controlled and implies competitive bids. We, therefore, think that Cyient will need to focus on cross-selling services to Citec’s client base. Cyient’s growing capabilities around digital will help.

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