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Accenture (ACN) to Benefit From ESR Labs Buyout: Here's How

Zacks Equity Research

Accenture plc ACN yesterday announced that it has inked a deal to acquire ESR Labs — a Munich-based company that develops embedded software for leading German car brands and suppliers — for an undisclosed amount.

The deal closure — subject to customary conditions — will see the addition of ESR Labs to Accenture Industry X.0.

Within Industry X.0, ESR Labs will be working unitedly with strategic design consultancy, designaffairs and technology consultancy, Zielpuls — two other acquisitions done by Accenture to boost the suite and complement its presence in Germany.

Deal Benefits

The acquisition will bring in more than 130 software engineers and software architects from ESR Labs who should strengthen Accenture’s potential in helping automotive clients drive greater value from software.

ESR Labs, designaffairs and Zielpuls are expected to develop smart connected solutions for medical technology, industrial equipment and high-tech companies and mobility services for carmakers.

Considering the decline in global car sales and rising demand for more convenient and customized mobility services, the latest deal seems to be a strategic move on Accenture’s part to strengthen its foothold in the automotive industry.

Axel Schmidt, a senior managing director and Accenture’s global automotive lead, stated, "With ESR Labs, we can help our clients in the automotive sector embrace and implement new technologies much faster."

Meanwhile, we also believe the deal should complement Accenture’s robust growth in the Europe region. During first-quarter fiscal 2020, revenues of $3.79 billion from Europe improved 2% year over year on a reported basis and 7% in terms of local currency, driven by Italy, Germany, France and Ireland.

Frank Riemensperger, market unit lead for Accenture in Germany, stated, "Bringing together ESR Labs, designaffairs and Zielpuls will go a long way in helping clients in our market tackle their digital challenges. Together, we can help them develop some of the world's most innovative and high-quality products and services."

Notably, Accenture’s prior initiatives in strengthening its Industry X.0 suite include the acquisition of VanBerlo, a Dutch product design and innovation agency in February 2020; US product innovation and engineering company, Nytec and UK innovation firm, Happen in October 2019; US embedded software specialist, Pillar Technology and US hardware engineering firm, Mindtribe in 2018.

Zacks Rank & Stocks to Consider

Currently, Accenture carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader Zacks Business Services sector are Interpublic IPG, Omnicom OMC and Genpact G, each carrying a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term expected EPS (three to five years) growth rate for Interpublic, Omnicom and Genpact is 4.5%, 5.6% and 11.9%, respectively.

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