Courtship of Applus+ accelerates

If there were a mold to make purchase offers (opas), the multinational Applus+, leader in the ITV business, would fit into it like a John Lobb shoe on a millionaire's foot. The company, say those who know about acquisition offers – and shoes – has everything to arouse interest among seekers of safe and fast profits: ability to make cash; absence of a controlling majority shareholder and a business structure of four large areas (energy and industry, automotive, IDIADA and laboratories), cash generators and easy to place and sell in a sector in consolidation. The dream of the shark Gordon Gekko, the protagonist of Oliver Stone's film Wall Street.

Applus+'s main shareholders are Morgan Stanley (5.5%), Southeastern Asset Management (5.1%), DWS (3.8%) and Banco Santander (3%), its largest Spanish shareholder. Today, its main business is the services it provides to energy and industrial companies, which contribute 54% of its revenues (a total of 2,049 million in 2022). Its presence of 10 years in the stock market and the situation of the markets have fueled the expectations of an operation on the company. There is atmosphere. Applus+ acknowledged to the CNMV at the beginning of May that there are "non-binding and unsolicited expressions of interest" for the acquisition of the company. Reuters revealed the interested parties: venture capital funds Apollo, Apax and a consortium formed by I Squared and TDR.

But it's just the newcomers. Since the start of the war in Ukraine and the rise in interest rates, Applus+ has appeared in most pools as a candidate to receive a takeover bid that would delist it. Already in March, according to the notes of the manager Bestinver Securities, the press detailed the alleged interest of Brookfield in an unofficial preliminary offer at a price of 10 euros per share that was rejected by the company. Following the offer, the company would have approached JP Morgan to analyze the interest of different funds. In the face of agitation, discretion. The company, which will hold a general meeting in June, does not comment. "We prefer to keep a low profile," explain authoritative sources of the company.

Venture capital looks to Applus+ for "recurring [predictable] businesses, with long-term contracts, focused on niches in which it is a leader and which imply higher margins and profitability," explains Gaesco analyst Jaime Pallarés. An activity of interest because the main end customers in the countries in which the company operates – 65 countries and 25,000 employees – are ministries, government agencies and public institutions. And among its private clients is the Gotha of companies: ACS, Iberdrola, Toshiba, Bosch, Rolls Royce, Airbus, Shell, Naturgy, Nissan and General Electric, to name a few. Logically, such a clientele requires close attention to the political decisions of governments, although what Applus+ offers – a kind of quality assurance of essential activities – attracts both companies and administrations.

With these wickers, Applus+ has shaped a strategic plan until 2024, the direct work of its current CEO, Joan Amigó. The plan is a basket whose essential content is revenue growth (10% per year); an adjusted earnings per share increase of 13%; a return on invested capital in 2024 greater than 12%; share buybacks (5%); between €300 million and €400 million earmarked for purchases and, importantly, keeping the debt/gross profit ratio under control, below three times.

Debt, along with generous financing from public clients, are hot spots on the company's financial map. The debt, at the end of last year, reached 909 million euros. For Applus+ it is important to identify the least profitable activities to sell them, release ballast and finance the entry "into markets of greater growth and margin and with lower risks", according to the company's own public documents. The latest sales operations respond to that plan. Applus+ exited Finland (Katsastajat OY), the United States (sold Applus Technologies) and, most recently, Costa Rica. It has compensated with the purchases in the last two years of companies such as the German IMA, the Saudi Safco or, more recently in Spain, IDV Madrid and Enertis.

On the horizon of Applus+ there is another point of concern; relative, but restlessness at last. In September 2024, the 25-year concession of the Generalitat of Catalonia to the subsidiary IDIADA (20% of the Generalitat itself) ends. IDIADA, former Institute of Applied Automotive, provides services to automotive companies in the development of their new products with design, engineering, testing and homologation. For Applus+, IDIADA accounts for 14% of revenue. Although the contract has the possibility of renewals in periods of five years, the Generalitat has decided that there will be no more extensions of the current contract, but a tender for a new concession of 20 or 25 years. Applus+, by history, experience and contacts, plays at home. But it will have to compete with other companies.

The role of the Generalitat

"Applus+ has good relations with the Generalitat, has been managing IDIADA's business for many years and there should not be much risk [of losing the big contract]. In the end, it is a Catalan company, with good contacts", summarizes Pallarés (Gaesco). It is the most widely held opinion and is largely based on the history of Applus+, with two main milestones. One, the creation of IDIADA in the seventies at the request of the Polytechnic University of Catalonia, with a testing ground of 370 hectares in La Oliva (Tarragona) as its main asset; and two, the constitution in 1996 of Applus+ by the company Aguas de Barcelona with the impulse of La Caixa.

The Generalitat privatised IDIADA in 1999 and awarded it to Applus+. In just five years, the company attracted the interest of new investors such as Soluziona-Unión Fenosa or Caja Madrid. In 2007, the controlling shareholders (Agbar, Fenosa, Caja Madrid) sold the company to the Carlyle fund, which prepared it for seven years for its debut on the markets in 2014. Carlyle sold the shares in the IPO at 14.5 euros a share. Today, doubts and pandemic, Applus+ shares are trading at around 9 euros, which places the company's stock market value at around 1,216 million. A shot of opa. If the purchase goes through, it would be the largest operation so far this year in Spain. A cramp in a market that has been paralyzed for months by uncertainty and rising credit prices.

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