Altran Technologies S.A. Upgraded To 'BBB' Following Acquisition Of Controlling Stake By Capgemini; Outlook Stable

  • Capgemini SE now holds a controlling stake in Altran Technologies S.A. (Altran) after the Paris Court of Appeals confirmed the validity of Capgemini's tender offer for the company.
  • We view Altran as integral to Capgemini's overall strategy, and expect the group will support Altran under any foreseeable circumstances.
  • We are therefore raising our long-term issuer credit and issue ratings on Altran and its senior secured facilities to 'BBB' from 'BB', and withdrawing the recovery ratings on the debt.
  • The stable outlook on Altran is driven by that of Capgemini, because of Altran's integral relationship with the group. The stable outlook reflects our view of Capgemini's solid balance sheet and liquidity, and our expectation of sustained revenue recovery (low-to-mid-single-digit range) after our estimate of a slight drop in 2020 due to the COVID-19 pandemic.
DUBLIN (S&P Global Ratings) March 24, 2020--S&P Global Ratings today took the rating actions listed above.
On March 13, 2020, the Paris Court of Appeals confirmed the validity of Capgemini's tender offer for Altran.   This means Capgemini now holds 55.13% of Altran's share capital and 55.06% of voting rights. Capgemini's offer of €14.50 per Altran share is again available until March 27, 2020. We believe it is very likely that Capgemini's stake will increase to over 55.13%, since we understand its long-term intention is to obtain 100%.
We believe Altran's credit quality has improved as a result of the acquisition, given it is now part of the much bigger, more diversified, and cash generative Capgemini.   In our view, Altran also benefits from Capgemini's more prudent balance-sheet position, even considering this debt-financed acquisition. We believe Altran's size, accounting for approximately 23% of the enlarged group's revenue, and its importance to Capgemini's long-term strategy, means it is integral to the group and likely to receive group support under all possible circumstances. Due to lenders' requests, only a portion of Altran's senior secured term loan will be refinanced due to the change of control clause. However, we expect Capgemini will refinance all of Altran's debt over the coming months.
We continue to assess Altran's stand-alone credit profile at 'bb', reflecting our view that it is the largest player in the outsourced engineering research and development (ER&D) services market globally.   The company holds No. 1 positions in sectors such as aerospace, semiconductors, telecommunications, and software engineering. This diversity protects against cyclicality, but the market is highly fragmented and competitive, meaning Altran's global market shares remain modest and ER&D services providers have limited bargaining power against large research and development spenders.
The stable outlook reflects our view of Capgemini's solid balance sheet and liquidity, and our expectation of sustained revenue recovery (low-to-mid-single-digit range) after our estimate of a slight drop in 2020 due to the COVID-19 pandemic. We expect the company's adjusted EBITDA margin will remain above 13%, adjusted leverage will remain above 2.0x, and funds from operations (FFO) to debt below 45%.
We could take a positive rating action if we consider the group able to significantly improve its margin and cost structure.
We would consider lowering our rating if Capgemini's adjusted leverage increases well above 3.0x for a prolonged period, with FFO to debt remaining at 20% or below. This could occur through unexpected deterioration in operating performance and/or lower expected synergies and higher required costs for Altran's integration.
We could raise our rating if Capgemini sustainably improves its S&P Global Ratings-adjusted EBITDA margin toward 15% and FFO to debt above 45%, while maintaining mid-single-digit currency growth and adjusted debt to EBITDA below 2.0x.
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