(News Bulletin 247) – The two groups, which had confirmed discussions with a view to a potential merger, have decided not to go any further. Both companies will focus on their respective strategic plans.

The big bang in the ICT sector (tests, inspections, certifications) will not take place. The French Bureau Veritas and the Swiss SGS, two of the biggest players in this industry, confirmed in mid-January that they had entered into discussions with a view to a potential merger.

But these discussions did not prove fruitful. In separate press releases, the two companies announced that they had decided to stop trading without going further.

“Discussions have not resulted in an agreement and have ended,” SGS announced. The Swiss company said it would focus on its strategic plan “Strategy 2027 Accelerating Growth, Building Trust”, which was unveiled in January 2024.

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“Consolidation of the sector”

“Although a strong conviction exists around the potential for value creation linked to the consolidation of the Testing, Inspection and Certification (TIC) sector, Bureau Veritas announces that these discussions have ended and have not resulted in an agreement” , for his part declared the resident of the CAC 40.

The French group will also focus on its “Leap 28” strategic plan which was presented in March 2024. This roadmap should allow the French company to appear among the top three players in the sector in 90% of its activities by the end of 2028 compared to 75% in 2023.

On the Paris Stock Exchange, Bureau Veritas shares lost 2.9% at the start of the session, showing one of the biggest drops in the CAC 40.

A potential merger between Bureau Veritas and SGS would have created the first player in the ICT sector. The combined entity would have posted combined revenues of around €13 billion (based on 2023 results) and a market capitalization of around €31 billion.

This would have allowed this company to benefit from a significant advantage in terms of size, while the ICT sector remains fragmented. According to Royal Bank of Canada, the ten biggest players in the sector share around 25% of a market estimated at around 150 billion euros.

Bureau Veritas was “in a position of strength”

The prospect of such a merger also gave rise to reservations from analysts. Oddo BHF had pointed out risks of negative synergies.

“In the ICT sector, client companies do not always grant 100% of their volume of activity to a single provider in order to manage risks. The reason for this is that the ICT sector is linked to the accreditations of these actors (it must be accredited to carry out this or that test, inspection or certification)”, explained the broker.

“If an actor, for whatever reason, loses its certification, its client must then be able to allocate its flows quickly to another actor, without restarting all the processes from scratch. Also, to the extent that SGS and Bureau Veritas are the two largest players, it is likely that one will be a secondary supplier where the other is a primary supplier (and vice versa In the event of a merger, a new secondary supplier is likely). is chosen, making the operation creative of synergies negative”, developed Oddo BHF.

Jefferies said, for its part, “noting that many ICT-related activities remain relatively local activities whose integration can take time, with cultural differences between organizations and a risk of ‘dis-synergies’.

For the independent research firm Alphavalue, if such a merger would have created a champion, it remained to know the terms of this operation to determine its appeal.

On this last point, Alphavalue noted that Bureau Veritas was in better shape than SGS. The French group has, over the last two to three years, diversified its portfolio of activities and posted both stronger growth and a higher margin, underlined the research office.

Alphavalue concluded that Bureau Veritas was “in a strong position” to negotiate the terms of this merger. “Given these factors, we believe that BV should be able to obtain better terms in the merger, which would determine whether the merger is profitable or not,” explained the consultancy firm.