Hexagon adds MSC to its stable, for $834 million

Now we know. The sale of MSC Software has been rumored for a while but always seemed to mention financial buyers. It turns out that a strategic buyer has stepped up — and I think it’s a perfect match.

First, the background: Hexagon AB, for those who don’t know, today provides solutions that range from manufacturing (via VERO CAM solutions and Hexagon metrology tools) to 911, utility and other public safety and security solutions (from the former Intergraph subsidiary), laser scanning powerhouse Leica, to Intergraph Process, Power and Marine, a major supplier of solutions for design, engineering, fabrication and operations — in other words, lots of verticals, lots of technology, world-wide.

MSC’s capabilities are a great addition. Well known in discrete manufacturing, MSC’s Nastran, Adams, Apex, Patran et al. help designers and engineers virtually test their products, optimizing them before a prototype is ever built and, in some cases, avoiding testing altogether. MSC has always had a presence in the process industries, but I don’t think it’s ever been a focus; that’s now likely to change

With this gives Hexagon is a way to bridge the CAD world (which it doesn’t really have in manufacturing) with the manufacturing, via CAE. In the plant world, of course, it opens up a world of possibility to more tightly build CAE workflows into the design process. Hexagon already has some unique capabilities here, in tank/vessel design, acquired with Coade, but this is a new level of CAE for PP&M customers, one that they’re likely currently getting elsewhere.

Hexagon CEO Ola Rollén said in a press release that “MSC represents a game changer in our mission to deliver actionable manufacturing intelligence, taking us another step closer to realizing our smart connected factory vision in discrete manufacturing industries such as automotive and aerospace. We can now leverage the data our MI division [Manufacturing Intelligence, the coordinate measuring machine/metrology part of Hexagon –Ed.] is generating to improve design choices and processes upstream in the workflow. The acquisition will also open up new markets and touchpoints for MSC via our PPM division.”

The details:

• The purchase price is $834 million, on a cash and debt free basis (Enterprise Value)
• That’s an EV multiple of roughly 3.5x, since Hexagon says that MSC had revenue of $230 million
• Shutting down some reports, Hexagon says that MSC had “strong profitability and a high percentage of recurring revenue” in 2016
• Hexagon will fund the transaction via bank facilities
• The closing is expected in April, pending regulatory approvals

As I said, I like this. I think it’s better when the companies in our universe to be owned by entities that see their strategic value — it usually means a higher rate of investment, more public-facing and engaging management, and lots of integration opportunities. I’m excited to see what happens next.

UPDATE: MSC CEO Dominic Gallello shared with me the letter sent to MSC customers about the transaction. It includes the following very important statement:

“Hexagon considers MSC’s management team, along with all MSC employees, to be an extremely valuable asset. No personnel changes are anticipated as a result of this transaction. Additionally, Hexagon is a strong believer in MSC’s product roadmap and growth plans. No change to MSC’s current product roadmap are planned.”

Later, in the FAQ, Mr. Gallello writes, “Hexagon has no plans to eliminate or sell [off] any products or business units.”