Morningstar | Capgemini and Altran Deal Highlights Need for Wide Digital Expertise to Remain Relevant
After weighing Capgemini’s announced acquisition of Altran for EUR 3.6 billion (excluding net financial debt of approximately EUR 1.4 billion), we retain our narrow moat rating and fair value estimate of EUR 93. However, we think the combination of these two Parisian firms will be complementary. It will allow Capgemini to expand its offshore software engineering expertise further into Eastern Europe and India and leverage Altran’s valuable existing relationships with world-leading clients (especially across the manufacturing, R&D, and supply chain decision-makers). We think Capgemini’s EUR 14 per share offer isn’t exorbitant (implies 1.7 times fiscal 2018 EV/sales and 18 times fiscal 2018 adjusted EPS) and reflects lackluster share price performance by Altran over the previous three years (Altran was trading around EUR 14 per share at the start of calendar 2017 and 2018). The transaction is expected to take place at end of calendar 2019 and Capgemini has secured bridge financing with refinancing to take place with available cash on hand of EUR 1 billion and debt issuance via new bonds.With digital transformation services dominating discussions in IT services today, Capgemini’s combination with Altran reflects the firm’s intention to be at forefront of digital services discussions and negotiations. Altran’s focus on operational technology, as opposed to IT, will widen Capgemini’s ability to service industrial and manufacturing clients and these customers’ thirst for smarter, faster, and more connected products and services. While we don’t expect Capgemini to leapfrog the fierce IT services field due to this acquisition, we do think it will at least continue to secure Capgemini’s presence in the rapidly changing services market, and further entrench the firm within its core European markets. After close, we do expect to see both revenue and operational synergies as cross selling and back office & facility optimization seem reasonable levers to pull.
Capgemini is a consulting and IT services provider. Co. works closely with technology partners at the cutting edge of innovation in major trends such as: Cloud, Big Data and mobility. Co. offers its clients skills in a variety of fields, such as digital transformation and digital customer experience, Cloud, Big Data, mobility, testing, cyber security, application management. In addition, Co. helps its clients enhance their performance and sharpen their competitive edge by offering them a range of skills grouped around four major businesses: Consulting Services through Capgemini Consulting, Technology Services (TS), Local Professional Services through Sogeti, and X Outsourcing Services (OS).
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