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Investing.com -- Shares of SGS (SIX:SGSN) rose more than 3% on Wednesday after the Swiss inspection and testing firm announced a $1.33 billion deal to acquire Applied Technical Services (ATS), a U.S.-based provider of testing, inspection, calibration and forensics services.
The deal, expected to close by late 2025 or early 2026, is part of SGS’s strategy to expand in North America and is projected to lift the region’s revenue above $1.5 billion, up from $720 million in 2024.
ATS is forecast to generate $460 million in revenue and $95 million in EBITDA in 2026, with a 21% EBITDA margin, nearly matching SGS’s reported margin of 21.8% in 2024.
SGS will fund the deal with cash, debt, and less than $100 million in newly issued shares to certain ATS shareholders and employees.
These shares will be subject to a three-year lock-up. The purchase price implies an enterprise value-to-EBITDA multiple of 11.2 times based on 2026 earnings including expected synergies, exceeding the 10.2 times RBC Capital Markets projects for SGS in fiscal 2026.
RBC analysts called the transaction a “strategic premium” deal and a major platform acquisition that significantly expands SGS’s presence in the U.S.
While noting the EPS is expected to be accretive from year one, they added that the deal’s return on invested capital may not exceed its cost of capital until later in the decade, citing a lack of disclosed details on depreciation, amortization, and tax assumptions.
Synergies of at least $30 million in EBITDA are expected within three years of closing, supported by cost savings and cross-selling opportunities.
SGS said the deal supports its Strategy 27 objective of more than doubling North American revenue by 2027 compared to 2023.
ATS was founded nearly 60 years ago and was acquired by Odyssey Investment Partners in December 2020.
Since then, it has expanded through 22 acquisitions, including Process Instruments, Instrumentation Technical Services, and Accu-Check in 2023.
It now operates 85 facilities across the U.S. and employs 2,100 people, serving sectors including aerospace, automotive, construction, power, defense, and insurance.
SGS CEO Géraldine Picaud has previously pursued bolt-on deals and a shelved merger with BVI.
RBC analysts noted that Picaud’s focus on consolidation enlarges SGS’s revenue base, potentially aiding future margin expansion, but may make it harder to isolate improvements in organic profitability.