Last week, there was much speculation that Emerson Electric and AspenTech were in merger talks–that was real, and a deal has been reached.
The headline is “Emerson to Accelerate Software Strategy to Capitalize on High Growth Industry Verticals and Technology Segments in Transaction with AspenTech”. The news release goes on to say that the companies will combine their software businesses, Emerson’s OSI Inc. and the Geological Simulation Software, with AspenTech to “create a diversified, high-performance industrial software leader with greater scale, capabilities and technologies (“new AspenTech”).”
Why do this? Because it “accelerates Emerson’s software investment strategy as the company continues to build a higher growth, more diversified and sustainable portfolio, by creating an industrial software company with immediate scale and relevancy in a fast-paced and evolving market … [and] enables Emerson to realize significant synergies and accelerate its software strategy to drive meaningful value creation.”
As we saw with Schneider Electric, Emerson believes that “[m]ajority ownership position in a highly valued, pure-play industrial software leader will give Emerson the platform and flexibility to strategically deploy capital for growth through continued investment and M&A … New AspenTech will be fully consolidated into Emerson financials and is expected to be accretive to adjusted EPS after year one.”
There’s an investor call later, but the main points of the transaction are:
- Emerson will pay AspenTech shareholders $87 per share in cash and give them 0.42 shares of common stock of the “new AspenTech” for each share of AspenTech common stock they own. The companies say this adds up to about $160 per current AspenTech share
- That means a total transaction value of around $11 billion
- The also means a premium of about 27% to AspenTech’s closing stock price on Wednesday, October 6, 2021, the “last trading day prior to media speculation regarding a potential transaction”
- Once completed, Emerson will own 55% of the new spenTech on a fully diluted basis and AspenTech shareholders will own 45%
Bottom line, “New AspenTech will offer a highly differentiated industrial software portfolio with the capabilities to support the entire lifecycle of complex operations across a wide range of industry verticals, including design and engineering, operations, maintenance and asset optimization.”
My take? I am often asked about industrial companies buying software companies — and why it makes sense. Emerson laid it all out: software margins, the strategic importance software has in the eyes of many buyers (that hardware alone doesn’t generate), cross-selling hardware and software … What’s not to love? And this makes more sense than having AspenTech snapped up by a financial buyer, who might not invest at the level needed to actively grow the company. Emerson, on the other hand, has every incentive to make the most of this deal.
The next steps: Emerson’s board has approved the deal; AspenTech’s board has approved the deal and now it’s up to AspenTech’s shareholders. Assuming 55% of shares are committed to the deal (and regulators also approve), the transaction is expected to close in the second quarter of 2022.
— UPDATE: I originally titled this “Emerson is acquiring 55% of AspenTech for $11 billion” — and that’s true but misleading. The $11 billion includes shares in the new AspenTech an is the total deal value. Emerson is actually shelling out $6 billion in cash for its 55% share, so I updated the title to be more accurate.