I had seen Intergraph PP&M perhaps acquiring a laser scanning company, but not a metrology company buying all of Intergraph, so yesterday’s news was quite a surprise. Digging into the acquisition a bit more resolves some questions but raises others.
Hexagon has historically measured the real world using sensors on a production line, cameras on a plane, laser scanners or other devices. It sees Intergraph as presenting this information in a meaningful way: as aerial maps, 3D drawings or CAD models. The real upside of the acquisition, according to Hexagon CEO Ola Rollen, is merging the measuring technology with representation, to create feedback mechanisms that enable decision-making and analysis. The Hexagon/Intergraph combination intends to address a much larger PP&M market by broadening its reach from the design phase into the operational. It also plans to undertake “pre-emptive and corrective activities” to grow SG&I’s market by combining real time data with GIS. But it also sees significant opportunity to leverage Hexagon’s sales organization to represent Intergraph’s products in emerging markets.
Ten years ago Hexagon was a small, regional company with no real core strategy. In 2001, it acquired Brown and Sharpe to create an offering for what it call the micro segment of the 3D measurement market. In 2006, it acquired Leica Geosystems to add non-contact measurement technology (such as laser scanning) and radically grew and strengthened the profitability of Hexagon; then in 2007, Hexagon acquired NovAtel to add core competences in GPS and inertial technologies. The focus had been on capturing using sensors. With Intergraph it gains capability to present this information and to use it in downstream processes.
Hexagon sees its value going forward as providing better solutions than 3rd parties can currently offer for bridging sensor data from Hexagon into Intergraph’s SG&I and PP&M solutions. it intends to merge the data from all of the various types of sensors, using scanning as a disruptive technology to create point clouds — replacing the bridging technologies currently in the market. Said CEO Ola Rollen, “with scanning, the boundary between GIS and CAD is becoming increasingly blurred”.
Mr. Rollen gave several examples from the plant design and GIS worlds. In plant design, the process typically starts when an EPC creates a CAD model during the design phase, which is then typically not updated during the construction process. As a result, the final product (an oil rig or plant) generally does not match the as-designed CAD model. This can pose a serious problem, as the plant will undergo many maintenance and refit projects during its 30-50 year lifespan, and an accurate digital model is essential for planning the new work. Since the CAD model is inaccurate, the plant owner will use a laser scanner, perhaps from Hexagon, to create a point cloud that represents the as-built plant. From this point cloud, a CAD model is built and work can proceed on the new project. Hexagon sees its combined offering as enabling continuous iteration during the construction project, combining CAD and laser scanning, that should result in usable data during the plant’s life. For the customer, Mr. Rollen sees the benefits as improving project execution, seamless integration from design to asset management, re-design and simulations available with real data and preserves intellectual capital.
For Hexagon/Integraph, it means growing its products’ use from the design portion of the life of a process plant into the much longer engagement with the owner, integrating its solutions into maintenance and upgrade projects.
During the presentation by Hexagon CEO Rollen, we learned that Intergraph PP&M had revenue of $317 million in 2009, with an EBIDTA of $129 million or 41% of revenue. Its products are used by almost all of the Fortune 500 process, power and marine companies. SG&I had revenues of $454 million with a much lower EBITDA at $70 million or 15% of revenue. One fascinating fact: during the time the equity companies owned Intergraph, the company repaid its loan and gave an extraordinary dividend of around $400 million, according to Mr. Rollen. Clearly, Intergraph was generating cash at an impressive rate.
For 2010, Hexagon sees Intergraph revenue totaling $830-$840 million (up 8%), with growth of 10% over the next few years. It sees additional upside as it enlarges PP&M’s market via point cloud scanning, combines its sensor technology with response GIS systems in SG&I, and the sales of Intergraph products selling through Hexagon’s emerging markets organization. Mr. Rollen would not say whether Intergraph’s management will remain with the new division but did say that many employees won’t even notice a change in ownership, though R&D teams may be created across the greater company as technologies are combined.
From my perspective, the combination of SG&I and Hexagon makes tremendous sense. The stated commitment to PP&M’s ongoing development is heartening, but the integration of Hexagon’s Leica point cloud technology with SmartPlant may not be the game-changer that Hexagon thinks it is. Integrating point clouds with CAD is currently possible (though perhaps not as elegantly as with the envisioned single-provider solution from Hexagon) and is already part of the work process at many of the world’s leading plant design, construction and owning companies. While PP&M might not grow as a result of this acquisition, the Leica portion of Hexagon’s business might as plant owners see the benefits of a single-provider CAD/scanning solution.
CEO Rollen gave a very credible presentation of Hexagon’s rationale for the acquisition and pointed out that it will not be in Hexagon’s interest to harm the cash engine (PP&M) that made Intergraph such an attractive target. We’ll have to see what the plans are for the PP&M products as the integration proceeds.
