PTC bolsters SLM offering with Servigistics

PTC today announced that it will acquire Servigistics for $220 million in cash to further fill out its offering for the very long services tail of a product’s life — an area where manufacturers are increasingly looking for revenue opportunities. Servigistics was founded in 1999 to address what it characterizes as the four “meta processes” of the service lifecycle: Planning, Execution, Information Management and Measurement & Control. Since then, the company has grown organically and by acquisition, including a 2009 merger with Click Commerce’s Service Network Solutions division to create a one-stop vendor for service parts pricing and planning, workforce and knowledge management solutions, service network logistics, parts execution, return and repair solutions. Then, in 2010, Servigistics acquired Kaidara Software, a provider of structured knowledge management software for technical service operations, and Conduit Internet Technologies, a provider of product content management solutions for OEM and dealer-based service organizations. Earlier this year, Servigistics acquired MCA to better serve the aerospace and defense markets. PTC says the acquisition will complement its existing SLM offering, which has been focused on warranty and contract management, service parts definition, and technical documentation. Servigistics’ offerings are “adjacent” to PTC’s current offering, focusing on service parts planning, field service management, returns and repair management, and service knowledge management. PTC CEO Jim Heppelmann said that PTC had initially considered some sort of partnering agreement but, in the end, opted for an acquisition. The business-y details: Servigistics had revenue of about $80 million in the last twelve months, so the purchase price is a revenue multiple of 2.75x. PTC CFO Jeff Glidden said that the revenue is split roughly 70% US, 30% international. Mr. Heppelmann said that Servigistics has a much smaller footprint than PTC, with 400 to 500 customers (about 50% of which are already PTC accounts, too), largely in North America. Mr. Heppelmann sees significant opportunity to grow this business internationally and in PTC’s own customer base. Servigistics’ revenue mix is roughly 15% to 20% license, 35% to 40% maintenance, with the remaining 40% to 50% coming from services. Clearly, one of Mr. Heppelmann’s first priorities will be to boost that license revenue component. The acquisition is all-cash, funded by PTC’s revolving credit line. The company has 400 employees, is headquartered in Atlanta and has additional offices around the world. PTC expects significant cost synergies in 2013 but is starting with a conservative revenue forecast, estimating that Servigistics will add 6% to PTC’s organic growth rate, bringing it to the low double digits. I am still learning about SLM and the opportunity PTC sees here. The manufacturers I talk to about SLM do want to turn their services businesses from cost centers to revenue generators, so PTC’s thesis is exactly right. The question is how PTC can reach the right people in these accounts, explain an overall offering for processes that are currently done by ERP or niche competitors, and demonstrate that it can actually meet these needs. This acquisition (assuming it closes) should give PTC added credibility in SLM via some of Servigistics’ marquee customers, will roughly double its SLM revenue and adds sales capability that is already conversant in SLM. What’s not to like?