A little consolidation in the industrial software space. Remember when Schneider Electric was shopping its software division a couple of years ago and came up with a reverse acquisition with AVEVA? And the deal fell apart almost a year ago?
Well, it seems that Schneider spent the year internally restructuring such that it could pull off this weird financial transaction. Announced Monday evening, the two companies have reached an agreement to ship SE software to AVEVA forming a new company with SE as a 60% owner and AVEVA holds the other 40%. Plus AVEVA shareholders get some cash in the deal.
Management touts the transaction as having a clear and compelling business logic. Reasons include building a “global leader in engineering and industrial software”, covering entire asset lifecycle management, and positioned for further acquisitions.
I’ve believed that Schneider would sell off its software businesses ever since the deal for Invensys was announced. Some venture capitalists have talked with me about potential acquisitions. Evidently no one wanted to buy it. I thought maybe Wonderware could make it on its own as a spinoff, but there probably wasn’t enough financial payoff for Schneider with that sort of deal.
However, this also isn’t a clear divestiture. One is left wondering what the future will bring in a couple of years when this transaction matures.
The Management of the Enlarged AVEVA Group will be comprised of:
- Key members of the existing executive management team of AVEVA, namely Dave Wheeldon (Chief Technology Officer and currently also Deputy Chief Executive Officer) and Steen Lomholt-Thomsen (Chief Revenue Officer) are expected to remain in place following completion;
- Ravi Gopinath, currently Executive Vice President of the Schneider Electric Software Business, will be appointed as Chief Operating Officer of the Enlarged AVEVA Group. He will report to the Chief Executive Officer of the Enlarged AVEVA Group; and
- David Ward will continue in his current role as Chief Financial Officer of AVEVA, until a new Chief Executive Officer is appointed. Following such appointment it is intended that David Ward will be appointed to the role of Company Secretary of the Enlarged AVEVA Group.
I received this from Vertical Research Partners analyst Jeff Sprague:
- Deal Structure Overview – Schneider Electric announced today the combination of its industrial software business and AVEVA to create a global leader in engineering and industrial software. On completion, Schneider will own 60% of the combined new AVEVA group while existing AVEVA shareholders will have 40% equity ownership. However, SU is contributing a little over 60% of the proforma EBITA in addition to a £550MM payment, and allowing AVEVA to distribute a £100mm dividend to AVEVA shareholders at or around completion. Schneider will benefit from unlocking the higher trading multiple of its Software business outside of the Group structure, in addition to future synergies (unquantified). We estimate the transaction creates 42 euro cents of value to SU’s stock price. Closing is expected to be at or around end of 2017.
- Strategic Rationale – The combined company will provide engineering services and industrial software, with combined revenues of £657.5mm and adjusted EBITA of £145.8mm for the financial year ended March 2017. The combined portfolio will cover process simulation to design and construction to manufacturing operations/ optimization. As shown below, AVEVA is very strong in the front end design and engineering work while SU is strong in O&M and asset optimization. The company noted an ability to create a more streamlined solution as it will control both ends of the spectrum. Management also indicated plans to scale up with future M&A. AVEVA will also enhance the value proposition of Schneider’s existing IOT platform (ExoStructure).
The only interest I’ve seen with total asset lifecycle management is with the OIIE platform from MIMOSA (download whitepaper from my site). A few end-user companies have shown interest in that, but I don’t know that the combined companies will offer much of a competitive advantage in that regard. That would require strong management bringing the disparate parts together into a whole.
For example, I only point to GE Digital whose recent public woes with the Predix system point to the difficulties of software integration.