What's going on?
$20 billion French IT firm Capgemini announced on Tuesday that it plans to buy research and engineering company Altran Technologies – its countryman – for $4 billion.
What does this mean?
Altran is a global leader in engineering and research and development services, spanning 30 countries and generating revenue of over $3 billion last year. Customers outsource product development to Altran, which then helps turn their concepts into reality.
Consultant Capgemini reckons buying Altran will help it get closer to existing customers – and their technology budgets – by adding more strings to its bow. And Capgemini hopes to attract new customers too, in the telecoms, media, and tech sectors – as well as in manufacturing, which may allow it to control-alt-delete less profitable older customers whose requirements focus on legacy computing systems.
Why should I care?
For markets: Investors liked both companies’ horoscopes.
Unsurprisingly, Altran’s stock rose: the company’s board has approved the deal, meaning most investors will probably accept the offer and pocket a 20% gain on Monday’s share price. But surprisingly, Capgemini’s stock rose too – by 8%. Usually, the risk of an acquisition not working out as hoped leads investors to sell off the buying company’s stock. They may have been sold instead on Capgemini’s new direction and the profit potential from access to a fast-growing market. And the risk involved could be somewhat mitigated by both companies being headquartered in France – limiting any culture clash.
The bigger picture: Keeping up with the times.
Industrial firms were once powerhouses of the global economy. While some have fallen fallow as technology companies rise to the forefront of growth, others are changing with the times and spending billions on new tech. For example, the “internet of things” isn’t just a consumer product phenomenon: machinery makers can benefit too. Helping to develop products for industrial companies’ tech upgrades could therefore be a major boon for Capgemini – and its big blue rival, IBM.