Hitachi acquires Thales’ GTS business in $2 billion deal

Get a free Techzine subscription!

The sale follows the French company’s efforts to streamline operations and reaffirm confidence among its investors as it prioritizes its core interests in high-tech defense and aerospace equipment.

Europe’s largest company for defense electronics, Thales, announced they were in talks to sell their GTS railway signaling business to the Japanese brand Hitachi, with the deal valued at 1.66 billion euros.

The goal for the defense magnate

The Thales CEO, Patrick Caine, commented on this move, hoping to realign the company to focus on their core high-tech businesses for long-term growth and revenue. These three main businesses are aerospace, digital security and identity, and defense.

Hitachi reported that their acquisition of Thales’ GTS arm would significantly augment their Rail division and help them reach their expected revenue goals of 1 trillion yen by 2026.

The 1.66 billion euro price tag is valued and linked to the enterprise value, which includes the existing debt, of Thales’ GTS unit, formally known as the Ground Transportation System.

Price calculations

This price was reached by multiplying the GTS unit’s annual earnings 13.8 times before factoring in the interests and taxes. Thales released a statement that they expected to finalize this deal by the end of 2022 or the start of 2023.

The company also added that they targeted an EBIT margin of 9.8-10.3% (earnings before interests and taxes).

Impact on the industry

The signaling unit for GTS also comes with train collection systems and services for fare collection. The overall unit is small when compared to competitors. This sale follows a wave of consolidation in the equipment industry, with many smaller players merging with larger industrial groups.

The French company Alstom, which specializes in train making, acquired the smaller Bombardier at 5.5 billion euros. This move has cemented their place at second position in the railway industry, after the Chinese giant CRRC.