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Siemens’s recent USD 3.5bn purchase of privately held UGS of Texas could foreshadow new interest in the manufacturing design and lifecycle sector, said industry bankers and analysts. The listed German electronics powerhouse designs complex products from turbines to locomotives to telephone switches, whose design can be simplified using UGS’s engineering software, which can later be moved into the factory. UGS, based in Plano, Texas, was acquired by Bain Capital and two other P/E firms from listed Electronic Data Systems, and itself was the result of a merger of listed Structural Dynamics Research and private Unigraphics, once a sector of formerly listed Westinghouse Electric, which sold a large part of its industrial sector to Siemens.
Now, industry bankers and analysts suggest, strategic buyers like Siemens are probably few, although some suggest growing Taiwanese and Chinese manufacturers including listed Hon Hai Precision Industry, Hua Wei Technologies and Comtech Group might be attracted. Listed EDS rivals like Accenture of Bermuda and Computer Sciences of California would probably want to avoid owning engineering software assets,, suggested Roy Wildeman, analyst for listed Forrester Research. “They are not products companies,” he added. Instead, industry software giants like listed IBM of New York, SAP of Germany and Oracle of California may seek to deepen manufacturing verticals, where they already are strong.
IBM now derives most of its profit from software and services and last year spent more than USD 10.5bn to acquire software companies in security, content management and health care. The biggest listed targets in the design-for-manufacturability (DFM) and application lifecycle management (ALM) space are listed Parametric Technology of Massachusetts and Dassault Systemes of France, along with smaller listed Ansys of Pennsylvania and Agile Software of California. IBM has long had partnerships with both Parametric and Dassault, although relations with the French ALM company have cooled recently, sources said.
Some sources said thriving California-based software giants Adobe Systems, the leader in publishing and representation software, and Autodesk, the leader in desktop design software, might tap into the sector. Adobe, for example, has a market capitalization of USD 24.2bn and reported USD 2.2bn in cash and investments as of 2 March; Autodesk’s market capitalization is USD 8.6bn and reported cash and investments of USD 778m as of 31 January. While both companies have grown through acquisitions, Adobe has been an especially good partner with other software developers, which might discourage it from buying a PLM vendor. One industry banker suggested it could buy Autodesk if it were serious about moving into the DFM sector.
But recent interviews with CFOs of both companies indicated little interest in large acquisitions, especially after Adobe’s 2005 purchase of listed Macromedia for USD 3.3bn. Adobe this week finally unveiled details of its latest upgrade of Acrobat, its principal product. Autodesk is in its first full year under new CEO Carl Bass, who would probably be reluctant to sell the company. Adobe shares have more than doubled since 2002, compared with a 34% gain for an index of application software shares including Parametric, whose shares have gained only 3.6%. That could spur some of the smaller ALM players to consolidate, such as Agile with Ansys, one industry banker said, now that both have restated their financials as a result of the federal options probe. But that did not happen after Dassault last year bought listed Matrix One of Massachusetts. Worries over a slowdown in Detroit, one of the DFM industry’s biggest customers, could also be a barrier, the banker said. But Forrester’s Wildeman said a thriving Japanese and Chinese automotive sector would most likely outweigh in slowdown stemming from the uncertainties at listed General Motors, Ford and DaimlerChrysler. That leaves a handful of listed and private specialists, including MSC Software of California, Parallel Graphics of Ireland, Altair Engineering of Michigan, and Moldflow of Massachusetts, which generally have technology links to all the larger players.
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