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Thales CEO says despite its recent €4 billion acquisition spree, Thales is still interested in making more acquisitions, as Europe’s largest defense electronics group seeks to capitalize on a recovery in military spending and civil aviation amid the coronavirus subsequent recovery.
Patrice Caine, who has led Thales since 2014, said the French group could still “deploy funds for more M&A” in any of its business units, although integrating recent acquisitions would be the current focus.
Thales has surprised investors by announcing three acquisitions in a row over the past few months, including a $3.6 billion acquisition of US cybersecurity group Imperva, its first acquisition of digital security company for €4.8 billion at the end of 2017. The largest acquisition since Gemalto.
“The first priority is to integrate these companies” and prove to investors that Thales can “create the value they expect,” Cain said in an interview in London.
But it will continue to look for expansion opportunities. “We do acknowledge that there may be some interesting mergers and acquisitions in the future,” he added. “So cyber, obviously but not just aerospace, defense or space.”
Thales has been gradually strengthening its cybersecurity activities for nearly a decade. Sales are expected to reach 2.5 billion euros by the end of 2024, Caine said.
Thales also won’t have to sacrifice shareholder returns on dividends and buybacks, Kane said. Previously announced buyback plans will be honored and the group’s current dividend payout ratio is around 40%.
Even after the deal is completed, the group’s leverage will remain manageable as it also divested a business to Japan’s Hitachi for €1.6 billion. Analysts say its net debt to EBITDA ratio will reach 0.7 times by the end of 2024, which is an acceptable level for an investment-grade company.
However, given the recent buying spree, “it’s hard to escape the conclusion that after March 2024 it’s time to buy back,” said Agency Partners analyst Sash Tusa.
Thales holds a key position in France’s corporate defense sector as it produces technology, software and sensors used in leading weapons programs such as the Rafale fighter jet and the SAMP-T air defense system. But it also provides technology to civilian aircraft, such as in-flight entertainment and radar, satellite and other space communications services, and now also conducts cybersecurity activities.
The French government is Thales’ largest shareholder, with a 25.7% stake, while Rafale fighter jet maker Dassault Aviation holds 24.6%.
Its shares have risen 16% this year to a record high, outperforming the MSCI World Aerospace & Defense Index, which was essentially flat.
Like its European peers, Thales has benefited from increased defense spending by governments following the war in Ukraine. Many of the company’s weapons, including the shoulder-fired Starstriker missile, were donated to Ukraine from Western government stockpiles.
Thales is one of a number of contractors seeking opportunities to strengthen ties with Ukraine amid signs the conflict will continue. Kane said the company was in talks with Kiev to provide “support and service activities” for its equipment used in the country.
While countries have increased spending on defense since the war in Ukraine began, the conflict has also reignited a debate over whether European countries should develop more combined arms programs or continue to rely on off-the-shelf equipment from U.S. manufacturers.
The FCAS fighter program promised by France and Germany has been slow to progress due to political and industrial infighting, while separate efforts to develop future tanks have encountered similar obstacles. Some analysts have expressed doubts that these projects will come to fruition.
FCAS also faces competition from the UK, Italy and Japan, another project called GCAP, which is progressing faster, although Caine disagreed with the comparison, noting: “This is a long-term project…” . I’m not worried. ”
Asked for his opinion on whether deeper defense cooperation between EU countries was actually possible, he pointed to successful examples such as Thales’ work for the British and French navies.
“If you take an example and you have multiple customers who have different operational perspectives or needs, plus different companies with their own agendas, you don’t actually need to be a Nobel Prize (winner) to do that,” he said. You could say it’s a challenge.”
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