Mirus Capital AdvisorsMirus Capital Advisors

Monday, August 11, 2014

PLM Vendors Make Acquisitions in ERP Territory to Seed Future Growth


Over the last couple of weeks some of the biggest names in Enterprise PLM software have announced acquisitions that expand their corporate growth strategies outside of traditional PLM and into what is generally considered ERP territory.

For instance, PTC furthered its commitment to Service Lifecycle Management (SLM) with its Internet of Things (IOT) acquisition of Axeda for an estimated 7-8 EV/Rev multiple and Dassault Systemes acquired supply chain execution and optimization (SCE) specialist Quintiq for 3.6 EV/ Rev multiple.

One question, whose answer has broad implications not only for PTC and Dassault Systemes, but also the PLM industry as a whole, is whether PLM is running out of room to grow or similarly has the PLM field has become so competitive that vendors need to differentiate their offering by extending their PLM product footprints into the enterprise. More specifically, these two acquisitions add and/or enhance product maintenance and repair (PTC) and product delivery processes ( DS) to their core PLM innovation, design, development and production workflows.

While Siemens PLM claims to have an MRO offering industry insiders report that it’s never really gotten any traction. Similarly, PLM rivals Dassault Sytemes and Autodesk have some MRO related marketing materials on their websites, but little else. Conversely, Oracle, SAP and IBM have more established MRO and SCE capabilities, which have historically fallen within the enterprise resource management (ERP) umbrella. Anecdotally, Mirus has heard several of PTC’s PLM rivals speak about extending PLM into MRO, but usually in the context of feeding MRO performance data back into the design process not to enter the IOT arena. DS is the first PLM player to enter SCE through acquisition.

As these transactions reinforce, we envision further convergence between ERP, PLM and Supply Chain; and as such, Mirus has extended its existing PLM research coverage into what we define as Manufacturing Automation, which traverses PLM, ERP and Supply Chain Management. If you are interested in learning more click here to download our latest report.

One of the things that the Manufacturing Automation research expounds on in greater detail is how we are witnessing PLM Oligarchs make a significant number of bets in adjacencies in hope of seeding future growth. What’s noteworthy are both the number of investments as well as the valuation metrics being paid. Before we jump into the valuation metrics of note, let’s review license revenue growth for both DS and PTC since it’s a key metric for the future prospects of any enterprise software company. We thought it would provide further context to why a buyer might be willing to pay a little more for a target.

In a recent announcement, PTC reported results below Q4 estimates and revised its 2014 revenue estimates lower. In its most recent 10Q, PTC reported year over year (2013-2014) organic and combined (plus acquisition) license growth for the first six months of 3% and 7% and 2% and 5% respectively. According to a slightly dated 2011 CIMdata Conference Summary report, “mainstream” PLM industry growth rates are in the 8.5-10% range, suggesting that PTC is significantly trailing PLM industry averages. Conversely, Dassault Systemes (DS) reported healthier organic Q2 14 and 1H 14 software license growth of 13% and 9% respectively. Enovia, DS PLM software platform grew over the same period 5% and 8% respectively. The Company reaffirmed its full year 2014 analyst estimates.

Blog 6 image

Interestingly enough, while we appreciate that valuations paid for targets are always a result of many factors, not the least of which is competitive friction, there seems to be some correlation between lower software license growth rates and higher multiples and vice versa. That said, PTC’s numerous acquisitions in the Service Lifecycle Management, a subset of its MRO offering, now exposes them to the IOT market, which was $1.9 trillion in 2013 and is expected to grow to $7 trillion by 2020, according to IDC Research. Whereas, in the case of DS, the supply chain execution and optimization market is smaller and expected to grow from $9B in 2013 to $10B by 2018, according to Gartner Research.

It will be interesting to see whether other PLM players follow PTC and DS into the enterprise and/or the ERP players strike back by encroaching on workflows that touch the engineering function, the stronghold of the PLM players.

 

Leave a Reply