Consolidation continues to rock the industrial software market. I recorded a podcast ruminating on the changes and where the market might be heading. Just last week, I added a blog post about a new CTO at NI. Previously, NI had reported strategy shifts to emphasize software as a key supplement and extension to its strong data acquisition and analytics portfolio. Independent software developers and longtime stalwarts in the market PAS and OSIsoft sold to Hexagon and AVEVA respectively. Iconics is now part of Mitsubishi. Infor went to Koch Industries. One wonders where AWS, Azure, Google Cloud might fit into this mix.
Perhaps you have seen speculation about the financial moves of Emerson and AspenTech. Some people extolled this as a sign of Emerson expanding into software. They missed the point. Emerson tried software making an acquisition followed by a divestiture. Remember Emerson made a big play that became public for Rockwell Automation. It’s obviously hungry for growth of some kind through acquisition.
Meanwhile, AspenTech has resided on shaky financial foundations for quite a while. New management has constructed a firmer structure, but the company still needed a capital infusion.
And again, Emerson had completed a couple of software acquisitions, but I think the financial managers figured out that mixing a software business into a hardware business is tricky. I don’t mean illegal tricky. I mean keeping track of the differing financial models tricky.
I find this financial transaction of Emerson and AspenTech intriguing. It seems to follow the path forged by Schneider Electric when it was trying to figure out what to do with the software portfolio it inherited with a number of acquisitions followed by swallowing Invensys. It took two software acquisitions plus AspenTech, mixed the pot with a wisk, and came away with 55% ownership of a new company dubbed New AspenTech.
Expect to see further consolidation.
Emerson to Receive 55% Stake of New AspenTech
- AspenTech Shareholders to Receive Approximately $87 Per Share in Cash and 0.42 Shares of New AspenTech for each AspenTech Share, Providing Upside through 45% Stake
- New AspenTech Expected to Drive Double-Digit Annual Spend Growth, Best-in-Class Profitability, Strong Free Cash Flow and Be Positioned to Pursue and Complete Strategic Transactions
- Emerson Reaffirms Fiscal Year 2021 Underlying Sales Guidance of 5% to 6% and Adjusted EPS Guidance of $4.06 to $4.08
Emerson and AspenTech announced that the companies have entered into a definitive agreement to contribute Emerson’s industrial software businesses – OSI Inc. and the Geological Simulation Software business – to AspenTech to create a diversified, high-performance industrial software leader with greater scale, capabilities and technologies (“new AspenTech”). Emerson will also contribute $6.0 billion in cash to new AspenTech, which will be received by AspenTech shareholders, in exchange for a 55% stake in new AspenTech. New AspenTech will offer a highly differentiated industrial software portfolio with the capabilities to support the entire lifecycle of complex operations across a wide range of industry verticals, including design and engineering, operations, maintenance and asset optimization.
The new company, which will retain the name AspenTech, enables Emerson to realize significant synergies and accelerate its software strategy to drive meaningful value creation. Majority ownership position in a highly valued, pure-play industrial software leader will give Emerson the platform and flexibility to strategically deploy capital for growth through continued investment and M&A. The transaction continues Emerson’s long history of delivering shareholder value. New AspenTech will be fully consolidated into Emerson financials and is expected to be accretive to adjusted EPS after year one.