Hexagon goes Blom-y

Last week Hexagon AB, the parent company of Intergraph, Leica Geosystems and other brands you likely know if you follow engineering software, announced its intention to acquire 25% of the shares of Blom ASA for approximately €9 million. I held off writing about it because Hexagon was to hold a financial analyst event yesterday and hoped for more info, but nothing was said so here’s the piece as originally written when news of the deal first broke. Hexagon AB, which prides itself on becoming a high margin software and measurement device company just entered the services business, even if indirectly. It has announced that it will take a 25% stake in Blom ASA, a troubled GIS services provider based in Norway. [Hexagon is Swedish.] Since a public company is buying part of another public company, this all has to be announced to regulators. In essence, Hexagon offered Blom’s shareholders NOK 8.3 (or $1.38) per share for up to 8.4 million shares. Two shareholders, SEB and Folketrygdfondet, jumped on the deal and stand to make a pretty penny: shares in Blom closed at NOK 4.10 on the day of the announcement (although I don’t know how much they originally paid for their holdings). Hexagon also announced that it “has no current plans for any further offer” for Blom’s shares, which tells investors (1) that they missed out on what appears to have been an attractive market premium and (2) that Hexagon doesn’t, right now, intend to purchase the rest of Blom. Who is Blom, you ask? Excellent question. Blom provides mapping and geographic products and services, both off-the-shelf and customized for specific uses. It sells to government entities, commercial enterprises and consumers. The company’s primary markets are in Europe, but it does carry out projects worldwide. It’s been a troubled company lately, with legal wrangles over Pictometry data and general economic turmoil leading to declining revenue and reduced demand for its products. In 2011, revenue was NOK 437 million (about $70 million), down from a high of NOK 867 million in 2008. Blom has subsidiaries in 13 countries and its geographic information database is generally considered to be one of Europe’s largest set of maps, aerial images and geospatial models. Its online services provide customers and partners access this database; customers update their own datasets while partners can create applications that leverage Blom’s location-based services and navigation solutions. The company operates in two divisions, Blom Geo Engineering Services and (BGES) and Blom Information Services (BIS). BGES is by far the larger group, accounting for 85% of Blom’s revenue in 2011. In BGES, geographers produce geospatial models for engineering and earth monitoring. They support public services, urban and rural planning, environment and forestry, defense and telecom, among other verticals, and work primarily with municipalities and government agencies. BIS, in contrast, sells BlomURBEX, a database solution for online distribution of Blom’s data model and image products on many solution platforms. BIS is focused on six main markets; navigation, location based services, geographic search and online portals, emergency and security, real estate, and land and property administration. Plugins to access the BlomURBEX data and services are available for ESRI ArcGIS Desktop, Intergraph Geomedia, MapInfo, Autodesk Map 3D Bentley Systems MicroStation; web services are available for Intergraph Geomedia WebMap and ESRI ArcGIS Server. No word on whether this new relationship changes how BlomURBEX will work with partners other than Hexagon, but I don’t imagine it changing at all. What’s interesting about this announcement is that it was so muted — I’m not sure how many outlets even picked it up and the companies certainly do not seem to have made much noise about it — but it deserves notice. Europe represents a large, sophisticated market for GIS solutions and access to Blom-style real-time data updates is critical to many of Hexagon’s key accounts and product initiatives. Imagine staging the London Olympics without access to satellite imagery to plan for and execute evacuations or other emergency responses — I don’t even think that’s possible today. This deal gives Hexagon access to Blom’s database and allows Hexagon’s Intergraph SG&I unit to leverage it for defense, public safety and other users. Hexagon’s plan is to grow revenue to €3.5 billion by 2015, with an operating margin of 25%. That doesn’t preclude buying a services company, but makes it unlikely that Hexagon will buy the remaining shares of Blom. Even at its most profitable, I don’t think Blom’s operating margin was ever much over 15%. But paying €9 million to help out a valued service partner, a fellow Scandinavian company and gain access to their data — that seems worthwhile. (1 Norwegian krone, or NOK, is trading at about $0.16 or €0.13, if you feel the need to do some math.)