France's Altran to buy US group Aricent for $2 bn

Altran, a global leader in Engineering and R&D services (ER&D) has entered today through its subsidiary Altran US, into a definitive agreement to acquire Aricent, a global digital leader in design and engineering services, from a group of investors led by KKR, for a total enterprise value of €1.7 billion or USD 2.0 billion in an all-cash transaction.

Based on LTM June 2017 data, this corresponds to 10.6x EBITDA pre-synergies, and 8.0x4 post run-rate-synergies (14.4x EBIT4 pre-synergies and 9.9x EBIT4 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 is a global digital leader in integrated design and engineering services, primarily serving 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 and 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.

"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," said chairman and CEO Altran Group, Dominique Cerutti.

"For 26 years, Aricent has positioned itself as a leading global design and engineering company, helping our clients solve their most complex challenges in today's ever-changing, connected world," said CEO Aricent, Frank Kern.

"We are excited to join forces with Altran, an organization that seamlessly aligns with our values and core mission. This acquisition is a testament to Aricent's long-standing and deep relationships with our clients and it recognizes the special talents and strength of our more than 10,500 dedicated Aricent employees. We look forward to working closely with Dominique Cerutti and his leadership team to bring even greater value to our clients," added Frank Kern.

With this acquisition, Altran is expected to complete the operational and financial objectives of Altran 2020. Ignition plan as early as 2018 and will be in a position to accelerate and capture emerging demand and new opportunities.

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 3 years, with implementation costs representing close to 1 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 percent and 2.8 percent of the share capital, together representing 16.6 percent 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.