Happy new year! It’s always exciting to start afresh and AVEVA gets 2015 off to a roaring start with the first PLMish acquisition of the year: it snapped up 8over8 Limited for its ProCon capital project risk management software platform. 8over8 says it’s helped customers save over $12.4 billion through reduced cost overruns and enhanced cost recovery on 300+ major capital projects totaling $600 billion in capital expenditures.
While that 2% savings doesn’t sound like a lot, it can make the difference between a profitable project and a disaster. For example, change requests can really spike costs since the originators often don’t realize the cost and schedule consequences of the proposed change. ProCon creates alerts that notify contract managers of these change requests so that the true impact can be assessed. Too, ProCon lets contractors prove to owners and joint venture partners that they have good governance procedures in place for the project.
Cost recovery is both a tax/accounting/depreciation thing and a real, contract thing. From a contract perspective, cost recovery means assessing the cost of an unplanned event to the appropriate party. That’s a big deal in the AEC world: the HVAC contractor must pay his workers for time on the job site, even if the air handling equipment wasn’t delivered by the equipment supplier. Creating an agreed-upon source for contracts, schedules and other relevant data can help accelerate cost recovery cycle times and smooth cash flow for the individual businesses involved in the project.
Think of it this way: AEC projects are a maze of multi-billion dollar service agreements, with each party wanting to get the project done at greatest profit for itself, at the lowest risk (the owner wants it to be delivered on time, at the agreed-upon cost). But no one party is in total control — each can only control its own cost, schedule and work quality. Contracts are the glue that holds it all together and must be managed as the project evolves. By connecting stakeholders, ProCon gives teams visibility into legal, schedule, procurement and other aspects — as they put it, “to identify where value is leaking, and the means to put a stop to it”.
AVEVA says 8over8 had revenue of £10.0 million and profit before tax of £3.1 million for the year ended December 31, 2013 and “is expected to deliver continued growth in the year to 31 December 2014”. AVEVA paid £26.9 million in cash for the company — a revenue multiple of something less than 2.69x (since we don’t know 2014 revenue). AVEVA says 8over8 is growing nicely and is very profitable, too; 2014 figures should be in sometime soon.
8over8 has been around since 2000, when it was formed to develop software for reverse auctions. (Remember that? A big thing in 2000.) That changed when British Gas got in touch for help in managing its big contracts; that project led to ProCon, and British Gas became 8over8’s first customer. Since then, Shell, Chevron, BP and others have jumped on ProCon, in the oil and gas, shipbuilding, mining and other project-based industries.
Why would AVEVA want to get into this part of the AEC game? Because projects of the type AVEVA already plays in are only getting bigger, with more partnering, more firewalling of information and much greater risk for all involved. Everyone in that chain needs to increase visibility, improve control, prove that they are fiscally and legally responsible as the project proceeds and not content to sort it all out in court after the fact. Working on the business side of projects gives it an entry into the C-level at existing customers and prospects, access an engineering IT provider doesn’t always get.
Finally, 8over8 is a relatively small company (70-odd people) selling into industrial giants. 8over8’s core team is in Ireland; it’s satellite offices can’t support clients’ local project teams. AVEVA’s global presence, long track record and strong balance sheet can help 8over8 expand far more quickly than it could on its own.
AVEVA CEO Richard Longdon said in a press release, “By acquiring 8over8, AVEVA is uniquely placed to ensure both technical and contractual integrity changes are captured during the project life cycle and provides further proof of AVEVA’s ongoing strategy to grow its business both organically and through acquisition.”
Mat Truche-Gordon, AVEVA’s EVP, Business Strategy and Marketing, is excited about the potential for 8over8 within AVEVA, both technologically and from a business perspective. He told me that “8over8 is a small team that is punching above their weight” as they sell into global mega-corporations, often growing project-specific installations into country or regional implementations. Mr. Truche-Gordon says 8over8 will “get a light touch”, continuing to develop ProCon as they have been but with added resources for sales, local support, marketing and other corporate functions from AVEVA. Technologically, he’s interested in seeing how ProCon’s templates and business intelligence can be worked into AVEVA Net.
It’s an exciting diversification for AVEVA and leads to all sorts of new opportunities. AVEVA had a somewhat chaotic 2014 as the falling price of oil caused a pullback in large new capital projects in oil and gas, leading to softer-than-expected sales. Not great for engineering software license sales. But even when projects are slower to materialize, they are run via contracts. Always. What better way for AVEVA to hedge risk than to expand within its core markets and customers into contracts management? And to new verticals? And to the C-level?