Thales creates a sensation. The French high-tech and defense giant just bought Imperva, a cybersecurity company specializing in data and application security, from Thom Bravo for an enterprise value of $3.6 billion. Big deal, the biggest since chip card giant Gemalto. The acquisition price corresponds to 4.3 times turnover and 15.2 times operating profit after synergy estimated until 2027, according to Oddo BHF.
In the near-term, valuation multiples (a measure of the costliness of the price awarded to a target) may appear “high” at first glance, at 6.1 times expected 2024 revenue and 35 times estimated operating profit over that horizon. Thales estimates that it will be able to generate $110 million in synergies by 2029, which is a significant amount. The transaction could be completed around early 2024, while Thales “doesn’t seem concerned about regulatory hurdles”, Oddo notes to BHF.
Defence, aviation, cyber security… Thales innovates on all fronts
Is the acquisition of Imperva attractive to Thales?
In addition to the strong expected synergies and independently of the question of the price agreed for Imperva, its acquisition may a priori appear relevant for Thales, judges Oddo BHF, for four reasons. First, the transaction “enables Thales to change the dimension in the area of cyber security”, as the group will thus achieve a turnover of 2.4 billion euros on this front (excluding cyber defense) in 2024, i.e. around 8% of the total turnover. Second, the acquisition of Imperva will accelerate Thales’ growth profile in terms of turnover and cash generation.
Thirdly, the transaction will allow some optimization of the balance sheet of Thales due to the increase in the debt it creates: the small debt actually allows to reduce the average remuneration required by the providers of capital (creditors and shareholders), which is positive for the theoretical price of Thales shares. Finally, according to Oddo BHF, the transaction excludes “other operations that could be more contentious”.
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However, if the Imperva acquisition improves Thales’ medium-term growth profile, equity investors are unsurprisingly picky in the short term. Indeed, Imperva is still in the midst of transitioning (from license to subscription) its business model “which affects its growth” (excluding acquisitions), according to BHF’s Oddo, who notes that the Imperva acquisition will not have a positive impact on Thales’ earnings per share before 2026 – too far, in the eyes of many shareholders.
Does Thales still have potential on the stock market?
Oddo BHF is finally confirmed in its “neutral” position on Thales shares, considered relatively close to its theoretical fair value: 137 euros, according to the Franco-German financial institution, but for which the recent acquisitions of Thales formed “a group with a more attractive growth and cash generation profile “. In Momentum, Capital’s premium stock market investment letter, discover our view on the outlook for Thales shares, as well as our scenarios for CAC 40 and French stocks. And right now during sales, take advantage of a 30% discount on the price of an annual subscription. To subscribe to our daily investment letter, simply click on the link below.
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