SGS, Bureau Veritas Eye €400 Million in Savings From Combination

(Bloomberg) — SGS SA and Bureau Veritas SA are seeking significant savings from a tie-up as talks advance to build a European champion for testing and certification with a combined market value of more than $33 billion.

Geneva-based SGS and France’s Bureau Veritas estimate an annual reduction in costs of more than €400 million ($412 million) at the combined entity, according to people familiar with the matter. 

Negotiations are very advanced and the key details of a business combination agreement, or BCA, could be ironed out over the coming days, said some of the people, asking not to be identified because discussions are private. A final agreement and announcement may take slightly longer, they said.

SGS didn’t immediately respond to requests for comment. Bureau Veritas declined to comment. 

The two companies on Wednesday confirmed a Bloomberg News report that they are in discussions regarding a potential combination, adding there can be no assurance that the talks will result in a transaction. They did not provide any details on the terms or structure of a deal.

Any deal between the companies will be an all-stock transaction, according to people familiar. The shareholders of SGS, the larger company, are set to hold a majority in the combined entity and Bureau Veritas’s owners will likely receive some kind of premium, the people said.

A combination would create one of the world’s biggest players in the crucial yet often-overlooked industrial testing, inspection and certification sector. The companies certify everything from cosmetics to food and toys and consumer electronics. They also ensure supply chains by inspecting goods during production and shipping and verify industrial emissions and sustainability claims. 

The testing, inspection and certification sector has several other players, including Trojan Technologies Inc., Dekra Testing and Certification SA and Intertek Group Plc. 

A combined SGS-Veritas would have an estimated global market share of about 6%, “which wouldn’t seem to justify regulatory intervention,” Bloomberg Intelligence analysts Stuart Gordon and Evgeniy Batchvarov wrote in a Jan. 15 research note. Any deal would be subject to regulatory scrutiny, but the fragmented nature of the industry suggests that approval is likely, they said.

Through Tuesday, before news of talks became public, SGS shares in Zurich had risen more than a quarter over the last 12 months, giving it a market value of 17.6 billion Swiss francs ($19.3 billion). Bureau Veritas was up by a similar amount in Paris over the period for a market capitalization of €13.5 billion.

Their market values before deal talks became public would imply a roughly 58% to 42% ownership split, according to data compiled by Bloomberg. 

The rationale for a combination includes gaining greater scale for investments aimed at increasing growth, costs savings and customer demands amid increased regulations for health, product and environmental standards. Bloomberg Intelligence has previously estimated synergies to shareholders that may conceivably exceed €250 million, helped by cost cuts, productivity gains and economies of scale.

The potential deal is being largely driven by the main shareholders of the two companies. European investment firm Groupe Bruxelles Lambert SA, which owns over 19% in SGS, and Wendel SE, the largest investor in Bureau Veritas with 26.5%, have been holding talks for several months, people familiar have previously said. 

In France, any potential SGS-Bureau Veritas deal would also likely need to be vetted by the French government. The Lac1 fund, managed by state-owned Bpifrance, last year bought a 4% holding in Bureau Veritas. Bpifrance has been involved in the talks and signaled it is open to the transaction, the people have said.

Established in 1828, Neuilly-sur-Seine-based Bureau Veritas specializes in laboratory testing, inspection and certification services. It has a presence in 140 countries and about 83,000 employees globally, according to its website. SGS, founded as a grain inspection house in 1878 in France, operates 2,600 offices and laboratories with almost 100,000 employees around the world, serving clients in diverse industries.

Under its new chief executive officer, Geraldine Picaud, who took charge last year, SGS has undertaken an aggressive acquisition strategy. As of November, the Swiss firm had made 10 purchases in 2024. Bureau Veritas, which joined France’s blue-chip CAC 40 in December, has been led by Hinda Gharbi since June 2023.

–With assistance from Claudia Cohen and Paula Doenecke.

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