Home News PTC’s slump makes it a serious acquisition target

PTC’s slump makes it a serious acquisition target


(29 JANUARY, 2009) Product lifecycle management vendor Parametric Technology Corporation's announcement of an expected drop in Q1 2009 earnings has sparked a steep decline in its share price, leading independent market analyst Datamonitor to believe that the vendor has become a potential acquisition target. In Datamonitor's view, of the possible buyers, Infor seems particularly likely to attempt a takeover. According to Datamonitor ultimately PTC represents an attractive proposition for those vendors looking to enter the product lifecycle management (PLM)* market and given the economic crisis, Datamonitor expects this market to see a noticeable increase in revenues.

The continuing effects of the global economic crisis on the manufacturing industry are starting to be felt by technology vendors selling into the space. As end-users reduce IT budgets, delay investment and realign technology strategies, the revenues of these vendors are declining. One such company, Parametric Technology Corporation (PTC), has seen its share price drop sharply in the last few weeks after announcing a profit warning on January 8, 2009 for Q1 of that year. Over the last 12 months, PTC's share price on the NASDAQ has dropped around 35% to $9.23 – a fall of approximately 55% from its peak in August 2008 – leaving the vendor with a market capitalization of around $1.07 billion. As such, Datamonitor believes this makes PTC a potential target for acquisition at a time when those companies with cash are looking for bargains.

The PLM market, in which PTC operates, has seen considerable consolidation in recent years: Oracle snapped up Agile in May 2007, Siemens bought UGS in January the same year, and Dassault Systemes (DS) acquired MatrixOne in March 2006. Given the economic crisis, Datamonitor has forecast the PLM market (excluding engineering applications) to reach a market size of $11.1 billion in 2013, up from $6.9 billion in 2007. This represents a noticeable increase in revenues, with a compound annual growth rate of 8.3%. As market growth slows, however, Datamonitor expects the trend of consolidation within the PLM market to continue, with PTC the prominent Tier 1 vendor target.

Datamonitor believes that one of the more likely suitors for PTC is Infor Global, a large privately owned enterprise applications vendor with approximately $2.2 billion in revenues. As the third largest enterprise applications vendor, behind SAP and Oracle, Infor has a history of frequently acquiring companies such as SSA Global to enhance its product capabilities, geographic strength, and penetration within the discrete manufacturing industry. In Datamonitor's opinion, Infor is currently outclassed by SAP and Oracle in the PLM market: it does offer a solution in this field, but one that is not functionally as rich as those offered by the two larger companies. Datamonitor believes that adding PTC to the Infor stable would significantly improve the vendor's strength within the manufacturing industry and provide additional scale and scope.

There are, of course, issues that would need to be overcome in order for Infor to make an intelligent acquisition of PTC. The biggest hurdle from a strategic point of view is the fact that PTC operates in two related but distinctly different markets: PLM and engineering applications (computer-aided design, etc.). Recent acquisitions in the PLM space have focused on those vendors that have operated almost exclusively in this realm (UGS, Agile and MatrixOne). Datamonitor believes it would be a mistake for Infor to take on PTC's engineering applications business (representing 62% of its revenue in 2007), given the lower expected market growth rates and the fact that it would not fit in with Infor's wider corporate and product strategy. One option might be for PTC to spin off the PLM side of its business to Infor, leaving it to concentrate on the engineering applications market. Another option would be for Infor to acquire PTC as a whole, keep the PLM business and sell the engineering applications business to another company; one potential buyer would be Infor's owner, Golden Gate Capital.

Among the other more obvious issues for Infor would be the availability of funding from its parent. The private equity group is undoubtedly feeling the pressure of the financial crisis; however, it may still have funds available for investment in Infor's acquisition strategy. Given the unclear outlook for the manufacturing industry over the next 12 months, Infor's acquisition of PTC would likely depend on two principal factors: its expectations of the time and cost associated with integrating PTC within its wider product mix, and the possibility of quickly reversing the recently announced expected decline in PTC's revenues.

In its favor, Infor has experience of integrating large companies, so it would not be unfeasible for it to assimilate PTC. Its largest recent purchase was SSA Global in 2006 for $1.35 billion, which is approximately what Datamonitor believes it would cost the firm to acquire the whole of PTC now.

There are, obviously, other vendors that may bid for PTC. For instance, an automation vendor may seek to acquire the company in the same way that Siemens obtained UGS. Datamonitor believes that Siemens' strategy of closely tying PLM to automation technology is intelligent, but is less confident of success if the strategy were to be replicated with PTC. Once again, PTC's sizeable engineering applications business would prove to be a significant obstacle. Similarly, Datamonitor believes that the larger automation vendors such as Rockwell Automation, which could potentially integrate PTC, are less likely to have access to sufficient funding and approval given that they are publicly traded.

Ultimately, Datamonitor believes that PTC currently represents an attractive proposition for those vendors looking to enter the PLM market. In particular, Infor is believed to be the most likely acquirer, as it is currently lagging behind competitors SAP and Oracle in the space. Important issues such as splitting PTC's PLM and engineering applications business will need to be seriously considered before a transaction is likely to take place; in a consolidating market, however, such a move would not be completely surprising.

Source: www.tradingmarkets.com/

Ben Hanson Ben Hanson is one of WhichPLM’s top contributors. Ben has worked for magazines, newspapers, local government agencies, multi-million pound conservation projects, museums and creative publications before his eventual migration to the Retail, Footwear and Apparel industry.Having previously served as WhichPLM’s Editor, Ben knows the WhichPLM style, and has been responsible for many of our on-the-ground reports and interviews over the last few years. With a background in literature, marketing and communications, Ben has more than a decade’s worth of experience, and is now viewed as one of the industry’s best-known writers.