Back in summer 2019, Capgemini announced the acquisition of Altran. This was the first big move we saw from a global consulting & systems integration (C&SI) provider towards becoming a leading player in the German engineering services market. After a “time-out due to Corona” in 2020, the next big step was the acquisition of ESG Mobility, the automotive business of ESG Elektroniksystem- und Logistik-GmbH, by Cognizant in March 2021.
And now we see another bold move by a global C&SI provider, Accenture, with the acquisition of Umlaut. Umlaut is not that well-known in the market as a brand, but it makes up the biggest part of P3 Group (4,200+ employees), which was split into two companies (Umlaut and P3) at the end of 2019. They probably already had plans back then to sell Umlaut in the near future, and the pandemic delayed the acquisition by Accenture, which has now been announced. Exempt from the transaction are the attractive electromobility business and the Android Automotive topic, which will remain under the umbrella of P3. It is worthy of note that all three acquired companies (Altran, ESG Mobility, and Umlaut) had previously been among the top providers in the German engineering services market.
The market for engineering and R&D services covers a very broad range of diverse services. They range from basic technical assistance services (e.g. documentation) to complex embedded software development services. The engineering services market in Germany has so far been dominated by local players, but the acquisitions mentioned above represent a turning point and we believe that big, global C&SI providers will dominate the German market in the future.
There is a good reason for this shift. Developing and maintaining IoT-connected products and solutions is increasingly relevant for all clients in all areas of the manufacturing industry. This is why it is a compelling value proposition to provide complete IoT support services to these clients by combining hardware engineering services, embedded software development capabilities, managed cloud services, analytics & machine learning, as well as customer experience services, plus other customized IoT applications. Smart products based on the clever combination of hardware, software, and digital services are a good opportunity for differentiation in the market.
We expect further large C&SI providers to enter the German engineering services market. The timing is good. We seem to be bringing the pandemic under control, the business outlook is more positive, and many industries are still going through a transformation, which most likely will reshuffle their group of key suppliers. The automotive industry, the most important industry for the German engineering services market, is a good example in this context. Many C&SI providers see an opportunity to position themselves as a holistic, strategic partner for the OEMs around the current transformation of the car (CASE – connected, autonomous, shared, electric). It is clear, however, that this ambition will place them in growing competition with their existing tier-1 suppliers, e.g. Bosch. They increasingly provide the same holistic services (around hardware, software, and cloud services). It will be interesting to see how the intensifying competition between large IT players and industrial giants will play out - not only in the automotive space, but also in the broader context of smart products.