Building and civil engineering will no longer be Bouygues’ core business: the acquisition of Equans, a technical services company in the energy sector, has shifted the conglomerate towards the buoyant energy transition market, even if the sum paid – 7.1 billion – caused the share price to fall on Monday.
The acquisition of Equans “is a complete and profound change of dimension”.
This takeover – the biggest in the history of the group founded in 1952 by Francis Bouygues – “represents a complete and profound change of dimension, which will shift its center of gravity”, a source close to the deal told AFP on Monday.
Historically known for construction, its core business, Bouygues had already diversified into telecoms (with Bouygues Telecom) and media (with TF1, in the process of merging with M6).
But its fourth division, “Energies & Services”, remained relatively modest, with sales of 4 billion euros.
Equans quadruples sales for the group’s Energy division
The integration of Equans – with no fewer than 74,000 employees and sales of 12 billion euros – will quadruple the size of this branch and make it “Bouygues’ leading business”, Bouygues emphasized in its press release on Saturday.
The group, chaired by Martin Bouygues, emphasized in particular “the buoyant market for multi-technical services”, which lies “at the convergence of energy, digital and industrial transitions”.
“These businesses are a good complement to traditional building and civil engineering, and above all generate higher margins, with multi-year maintenance contracts that offer a degree of visibility. And in this business, Bouygues was somewhat at the back of the pack, with a rather modest operating margin for Bouygues Energies & Services, at 2% in 2019”, points out Eric Lemarié, equity analyst at Bryan, Garnier & Co.
Astronomical” price
For Frédéric Rozier, portfolio manager at Mirabaud, the acquisition of Equans also “makes sense”, “from a geographical point of view, as Bouygues has a significant presence in this business in the UK, the Netherlands and Belgium. And also from an economic point of view, as we are aware, particularly with the ecological transition, of the need for transformation in the energy sector, and we know that growth is going to be there”.
He also points out that these businesses “are less cyclical. We’ve seen recently in real estate that there can be big air gaps”.
Questioning the profitability of this acquisition
However, Mr. Rozier believes that there are also “a lot of questions about the profitability of this acquisition: the price is just astronomical, with constraints on job preservation and job creation”.
Bouygues has in fact “undertaken not to implement any forced redundancy plans in France and Europe” for five years, and to “create a net total of 10,000 jobs” over the same period.
“It’s true that Bouygues has no debt”, but in its Energy & Services division “the margin level is rather below 3%. And yet, the proposed business plan is based on margins of almost 5%: so, yes, there may be synergies, but we wonder how they’re going to manage to achieve this level of profitability, which has never been achieved before”, says Frédéric Rozier.
Equans is a godsend?
The price we paid for Equans “is expensive, even if it’s not every day that we get a deal like Equans,” adds Eric Lemarié.
If the share price fell on the Paris Bourse on Monday (-5.96% at 3:12pm, to 33.47 euros), it’s because “the market thinks that Bouygues has paid too high a price, and that there are integration risks because the entity is large and likely to be made up of a multitude of different businesses, which could potentially complicate the execution of the deal”, according to Lemarié.
Mr. Lemarié also points out that “the deal won’t be finalized until the second half of 2022, and today we don’t have many official figures, so we’re entering a period of uncertainty, which is never good for the stock market”.
