Altran, a global leader in engineering and R&D services (ER&D), has entered into an agreement to acquire Aricent through its subsidiary Altran US. Aricent is a global digital leader in design and engineering services and will be acquired from a group of investors led by KKR, for a total enterprise value of €1.7 billion or $2.0 billion in an all-cash transaction. Based on last twelve months (LTM) June 2017 data, this corresponds to 10.6x EBITDA pre-synergies, and 8.0x post run-rate-synergies (14.4x EBIT pre-synergies and 9.9x EBIT post-synergies). The transaction has been unanimously approved by Altran’s Board of Directors and is expected to close in Q1 2018, subject to receipt of antitrust approvals and satisfaction of customary closing conditions. Following the transaction, the combined entity will become the undisputed global leader in ER&D services, a market expected to be worth €220 billion by 2020.
Aricent primarily serves clients of the communications and technology, semiconductor and software industries. Headquartered in Santa Clara (California), Aricent brings design and engineering capabilities to help its clients get to market faster, transform legacy products to digital, and create new revenue opportunities. Among the company’s assets is the iconic brand frog, which has with world-class design and client experience capabilities, outstanding knowledge and intellectual property for the telecom, software, semiconductors industries. Aricent also has solid experience in shaping large engineering outsourcing deals and key capabilities in key emerging technologies including Artifical Intelligence, Cognitive Systems, Internet of Things and software frameworks. Over the LTM June 2017, Aricent generated revenues of $687m with ca.10,500 employees and operated through 24 engineering centers and design studios, serving ca.360 clients globally.
Commenting on the acquisition, Dominique Cerutti, Chairman and CEO of the Altran Group, said, “Through this acquisition, Altran will be uniquely positioned to offer an unmatched value proposition to its clients and outpace competition. Altran will now have superior scale and scope, and now masters all four critical criteria necessary to lead the industry: a global presence and reach, leadership across most industries, strong expertise in key technology domains and a superior global delivery supply chain. This transaction acts as a catalyst allowing us to achieve Altran 2020. Ignition strategic goals as early as 2018. Current and future shareholders will benefit from this value-enhancing acquisition, delivering EPS accretion immediately while preserving our robust financial profile.”
The acquisition of Aricent is expected to enhance Altran’s financial profile, improve profitability and cash generation. Based on LTM June 2017, the combined entity has pro-forma revenues of ca €2.9 billion, an EBITDA margin of 14.9 per cent (EBIT margin of 12.7 per cent) and operating cash generation of 10.0 per cent of revenues.
This acquisition is expected to generate €150 million of additional revenues translating into €25 million EBITDA run-rate synergies and €25 million of delivery and cost synergies. These synergies are expected to be delivered progressively within three years, with implementation costs representing close to one year of cost synergies, to be spread over 2018-2019. The deal is expected to be EPS accretive from year one, and double digit accretive when taking into account run-rate synergies.
Altran has obtained a full financing package for the transaction, which is intended to be refinanced in part through a €750 million rights issue, subject to shareholders’ approval and market conditions. Altran shareholders Apax Partners and the founders, who respectively hold 8.4 per cent and 2.8 per cent of the share capital, together representing 16.6% of the voting rights, have confirmed their full support of the transaction, their commitment to vote in favour of the rights issue at the EGM and their intention to participate pro-rata in the rights issue.
Relevant staff representative bodies within Altran and some of its subsidiaries will be informed and/or consulted with respect to the debt financing and/or the rights issue contemplated in the context of the acquisition of Aricent.
Thanks to the strong cash flow generation of the newly created entity, rapid deleveraging is expected while maintaining shareholder remuneration consistent with past practices. Pro-forma for the transaction, Altran will maintain a strong liquidity profile and targets a rapid deleveraging below 2.5x two years after closing.
Altran and Aricent share a common vision of the drivers fueling accelerated growth in the ER&D market, and through their respective transformations have developed capabilities to match the strategic criteria that top global clients expect from their ER&D partners.