Rockwell is selling some? of its $1 billion stake in PTC
UPDATE: I am told that the SEC filing is notifying of an intention to sell up to all of the shares Rockwell owns — it’s not notifying us of sold shares. Am trying to learn the nuances and will add what I learn in another post so that it goes out to everyone.
Back in 2018, PTC and Rockwell were very bullish on a partnership to develop and sell Internet of Things (IoT) capabilities — so much so that Rockwell bought nearly 11 million newly issued PTC shares for $1 billion, giving Rockwell roughly 8% ownership in PTC and a seat on its board. Now, it seems the strategic element remains but the financial stake will go.
Rockwell, which makes electronic motors, timers, and other industrial hardware wanted in on IoT. PTC wanted to sell its IoT offerings via Rockwell’s channels and gain access to Rockwell’s installed base, many of whom might never have heard of PTC, being manufacturers and not necessarily CAD/PLM users.
Things seemed to be going well. Both CEOs spoke of joint selling, and during its Q4 earnings call, PTC CEO Jim Heppelmann said that Rockwell was the largest IoT reseller during the quarter. Even so, in its fiscal fourth quarter, PTC said “IoT grew mid-teens coming in below our target. However, bookings were strong in Q4, and we expect stronger ARR growth in fiscal ’22, following bookings momentum and the launch of our new Digital Performance Management Solution”. So IoT sales are growing, but not meeting expectations.
Still, yesterday’s news is a surprise. PTC filed an S-3 with the US Securities and Exchange Commission which says that Rockwell Automation “may offer and resell up to 10,582,010 shares of our common stock, par value $0.01 per share. Rockwell Automation purchased these shares from us … as of June 11, 2018 … as amended by an amendment to the securities purchase agreement, dated as of May 11, 2021 … We are not selling any shares of our common stock under this prospectus and we will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholder. The selling stockholder may sell the shares of common stock described in this prospectus through public or private transactions at market prices prevailing at the time of sale or at negotiated prices.”
What does this mean? Likely very little, from an operational perspective. The companies still seem to have joint development and go-to-market efforts, and PTC’s annual report (also filed yesterday) lists the Strategic Alliance Agreement between PTC and Rockwell as still active. And Rockwell is still all over PTC’s website. It is possible that any exclusivity Rockwell has for reselling PTC products may go away — but if Rockwell is meeting sales targets, perhaps not.
So why do this? A lot has changed since the relationship was first announced in 2018. Rockwell acquired Kalypso (a PTC reseller) and Plex. PTC announced the release of ThingWorx Digital Performance Management, which may change the dynamic in selling IoT. PTC’s share price has been on a bit of a rollercoaster ride, meaning that Rockwell has to keep revaluing the asset on its books with each earnings announcement — and sometimes that’s been problematic for Rockwell’s investors. And Rockwell has a new CFO …
Bottom line: I think both companies got out of this what they needed. PTC got significantly more exposure to potential IoT buyers than it was able to garner on its own. Rockwell became hip, owning a chunk of a software company — a big deal in 2018 that’s less of a big deal in 2021. Will Rockwell continue to sell PTC’s IoT solutions? Seems so. Will someone else buy 11 million or so PTC shares? Yup. Things change, but that’s not necessarily a bad thing.