Sandvik building CAM powerhouse by acquisition

Aug 30, 2021 | Hot Topics

Last year Sandvik acquired CGTech, makers of Vericut. I, like many people, thought “well, that’s interesting” and moved on. Then in July, Sandvik announced it was snapping up the holding company for Cimatron, GibbsCAM (both acquired by Battery Ventures from 3D Systems), and SigmaTEK (acquired by Battery Ventures in 2018). Then, last week, Sandvik said it was adding Mastercam to that list … It’s clearly time to dig a little deeper into Sandvik and why it’s doing this.

First, a little background on Sandvik. Sandvik operates in three main spheres: rocks, machining, and materials. For the rocks part of the business, the company makes mining/rock extraction and rock processing (crushing, screening, and the like) solutions. Very cool stuff but not relevant to the CAM discussion.

The materials part of the business develops and sells industrial materials; Sandvik is in the process of spinning out this business. Also interesting but …

The machining part of the business is where things get more relevant to us. Sandvik Machining & Manufacturing Solutions (SMM) has been supplying cutting tools and inserts for many years, via brands like Sandvik, SECO, Miranda, Walter, and Dormer Pramet, and sees a lot of opportunity in streamlining the processes around the use of specific tools and machines. Light weighting and sustainability efforts in end-industries are driving interest in new materials and more complex components, as well as tighter integration between design and manufacturing operations. That digitalization across an enterprise’s areas of business, Sandvik thinks, plays into its strengths.

According to info from the company’s 2020 Capital Markets Day, rocks and materials are steady but slow revenue growers. The company had set a modest 5% revenue growth target but had consistently been delivering closer to 3% — what to do? Like many others, the focus shifted to (1) software and (2) growth by acquisition. Buying CAM companies ticked both of those boxes, bringing repeatable, profitable growth. In an area the company already had some experience in.

Back to digitalization. If we think of a manufacturer as having (in-house or with partners) a design function, which sends the concept on to production preparation, then to machining, and, finally, to verification/quality control, Sandvik wants to expand outwards from machining to that entire world. Sandvik wants to help customers optimize the selection of tools, the machining strategy, and the verification and quality workflow.

The Manufacturing Solutions subdivision within SMM was created last year to go after this opportunity. It’s got 3 areas of focus: automating the manufacturing process, industrializing additive manufacturing, and expanding the use of metrology to real-time decision making.

The CGTech acquisition last year was the first step in realizing this vision. Vericut is prized for its ability to work with any CAM, machine tool, and cutting tool for NC code simulation, verification, optimization, and programming. CGTech is a long-time supplier of Vericut software to Sandvik’s Coromant production units, so the companies knew one another well. Vericut helps Sandvik close that digitalization/optimization loop — and, of course, gives it access to the many CAM users out there who do not use Coromant.

But verification is only one part of the overall loop, and in some senses, the last. CAM, on the other hand, is the first (after design). Sanvik saw CAM as “the most important market to enter due to attractive growth rates – and its proximity to Sandvik Manufacturing and Machining Solutions’ core business.” Adding Cimatron, GibbsCAM, SigmaTEK, and Mastercam gets Sandvik that much closer to offering clients a set of solutions to digitize their complete workflows.

And it makes business sense to add CAM to the bigger offering:

  1. Sandvik has over 100,000 machining customers, many of which are relatively small, and most of which have a low level of digitalization. Sandvik believes it can bring significant value to these customers, while also providing point solutions to much larger clients
  2. Software is attractive — recurring revenue, growth rates, and margins
  3. CAM lets Sandvik grow in strategic importance with its customers, integrating cutting and tool data with process planning, as a way of improving productivity and part quality
  4. The acquisitions are strong in Americans and Asia — expanding Sandvik’s footprint to a more even global basis

To head off one question: As of last week’s public statements, anyway, Sandvik has no interest in getting into CAD, preferring to leave that battlefield to others, and continue on its path of openness and neutrality.

And because some of you asked: there is some overlap in these acquisitions, but remarkably little, considering how established these companies all are. GibbsCAM is mostly used for production milling and turning; Cimatron is used in mold and die — and with a big presence in automotive, where Sandvik already has a significant interest; and SigmaNEST is for sheet metal fabrication and material requisitioning.

One interesting (to me, anyway) observation: 3D Systems sold Gibbs and Cimatron to Battery in November 2020. Why didn’t Sandvik snap it up then? Why wait until July 2021? A few possible reasons: Sandvik CEO Stefan Widing has been upfront about his company’s relative lack of efficiency in finding/closing/incorporating acquisitions; perhaps it was simply not ready to do a deal of this type and size eight months earlier. Another possible reason: One presumes 3D Systems “cleaned up” Cimatron and GibbsCAM before the sale (meaning, separating business systems and financials from the parent, figuring out HR, etc.) but perhaps there was more to be done, and Sandvik didn’t want to take that on. And, finally, maybe the real prize here for Sandvik was SigmaNEST, which Battery Ventures had acquired in 2018, and Cimatron and GibbsCAM simply became part of the deal. We may never know.

This whole thing is fascinating. A company out of left field, acquiring these premium PLMish assets. Spending major cash (although we don’t know how much because of non-disclosures between buyer and sellers) for a major market presence.

No one has ever asked me about a CAM roll-up, yet I’m constantly asked about how an acquirer could create another Ansys. Perhaps that was the wrong question, and it should have been about CAM all along. It’s possible that the window for another company to duplicate what Sandvik is doing may be closing since there are few assets left to acquire.

Sandvik’s CAM acquisitions haven’t closed yet, but assuming they do, there’s a strong fit between CAM and Sandvik’s other manufacturing-focused business areas. It’s more software, with its happy margins. And, finally, it lets Sandvik address the entire workflow from just after component design to machining and on to verification. Mr. Widing says that Sandvik first innovated in hardware, then in service – and now, in software to optimize the component part manufacturing process. These are where gains will come, he says, in maximizing productivity and tool longevity. Further out, he sees, measuring every part to see how the process can be further optimized. It’s a sound investment in the evolution of both Sandvik and manufacturing.

We all love a good reinvention story, and how Sandvik executes on this vision will, of course, determine if the reinvention was successful. And, of course, there’s always the potential for more news of this sort …