DEAL! AVEVA+Schneider, sorta

Jul 20, 2015 | Hot Topics

While you and I were at the beach or in the mountains, the lads and lasses at AVEVA have been busily negotiating a merger with Schneider Electric, one of the suitors that kept cropping up over the last couple of years. It’s a very complicated deal –and it make sense on many levels– so let’s see if we can break it down:

  • AVEVA will acquire Schneider Software in such a way that Schneider Electric winds up owning the majority of the shares of AVEVA.
  • Schneider Software was created when Schneider acquired Invensys in 2013. If you follow the space, you’re probably most familiar with the Invensys SimSci brand, which competes in may ways with Aspen Tech (another oft-rumored suitor for AVEVA. You can stop asking about that one now). SimSci’s process simulation, optimization and training solutions are a perfect match for AVEVA’s design solutions, and SimSci’s process control software can take it into interesting new directions, to rival what Siemens has in it PLM business. Invesys also brought with it Avantis’ enterprise asset management solutions; Eurotherm, process control tracking and recording; IMServ,which makes energy and carbon management solutions; Skelta’s business process management and workflow solutions; Triconex’ emergency and safety applications; and Wonderware, which makes industrial software including Human Machine Interface (HMI), SCADA, MES, real-time Operations Management and Production Information Management software. You may also know another Schneider Software brand: Foxboro, which provides process automation, control systems and instrumentation.
  • That sounds big, you say. How can AVEVA afford this?
  • This is where it gets complicated. The deal has AVEVA buying Schneider Software on a “debt-free cash-free basis” for £1.3 billion. The only way to do this is to issue 74 million new shares, which it will sell to Schneider Electric. This deal will give Schneider 53.5% of the shares of what’s being called the “enlarged AVEVA Group”.
  • At the deal’s closing, Schneider will give AVEVA £550 million that will be distributed to AVEVA’s shareholders (not including Schneider Electric). This is the part of the deal I don’t understand — seems to make it unnecessarily complicated. But AVEVA has been such a takeover candidate, with lots of private equity firms owning reasonably large stakes, that it might be the only way this deal could succeed.
  • The press materials announcing the deal say that this “enlarged AVEVA” will have combined revenues of £534 million and an adjusted earnings before interest, tax, depreciation and amortization of £130m. That means Schneider Software had revenue of $524 million (roughly£325 million) for the year ended 31 March 2015, more that AVEVA had in the same period.
  • This deal is being called a reverse merger and isn’t an outright takeover. Schneider Electric has agreed to not increase its stake in AVEVA for 2 years, and to not increase its stake above 75% for a further 18 months without seeking AVEVA’s approval and jumping through some other hoops.
  • AVEVA CEO Richard Longdon and the AVEVA board will remain in place (with the addition of two Schneider members when the deal closes), and the company will continue to be listed on the London Stock Exchange.

Richard Longdon, AVEVA CEO said in the announcement that, “The transaction will be transformational to AVEVA, creating a global leader in industrial software, which will be able to better compete on a global scale. Through the acquisition of Schneider Software, AVEVA will significantly expand its scale and product portfolio, diversify its end user markets and increase its geographic exposure to the US market, in line with our strategic goals.”

Schneider Electric CEO Jean-Pascal Tricoire said that that “combination of AVEVA and selected Schneider Electric industrial software assets … will create a global leader in industrial software, with a unique portfolio of asset management solutions from design & build to operations and will address customers’ requirements along the full asset life cycle in key industrial and infrastructure markets. It will also create the right environment for the software teams to develop aggressively their business, while benefiting from the multiple commercial access of Schneider around the world.”

The deal still needs regulatory and shareholder approvals.

I like this deal. I like that AVEVA stays independent, but with bigger everything. Schneider Electric styles itself as “the global specialist in energy management and automation”, both of which are critical for AVEVA’s base, regardless of end-industry. Schneider Electric reported revenues of €24.9 billion in 2014, with operations in 100 countries; its geo and vertical footprints are huge and much more diverse than AVEVA’s, which should help AVEVA boost its business in North America and enter new verticals. Add to this a product portfolio that spans process simulation with SimSci, detailed design via AVEVA’s PDMS and E3D and project/process/data management using AVEVA NET then asset data management with Avantis, and so on bringing the potential for a comprehensive and integrated offering that spans the 50-odd year life of an industrial plant. I’m sure there are also new technologies in R&D at both Schneider Software and AVEVA that are will extend the value of engineering and operational data beyond traditional boundaries; the ability to do this “in one house” should speed these developments and make them more useful early on.

AVEVA’s shareholders also like this deal (and who wouldn’t, given the cash payout that’s coming?), sending the share price up 28% at 1PM London time, as I write this.

I’ve asked the company for a timeline and additional info; will update if I learn more.