The share price of Aveva, the Cambridge-based industrial machinery design software group, has soared by over 6.5% so far today on news of agreement on the $5 billion takeover of U.S. peer Osisoft. Aveva will become the UK’s largest software group on the back of the deal, which bucks the recent trend of Britain’s technology stars being snapped up by foreign buyers.
Aveva, which was founded four decades ago and listed in 1996, sells software that helps companies design industrial machinery. Osisoft is a software developer whose products collect manufacturing data. The acquisition will be Aveva’s second multibillion-pound deal in recent years after its 2018 merger with the industrial software division of France’s Schneider Electric. The French company, which now owns 60% of its stock, became Aveva’s majority shareholder as a result of that deal, which doubled its size and propelled it into the FTSE 100 index.
The Osisoft takeover will take Aveva’s market capitalisation to over £10 billion, making it the largest software company on the London Stock Exchange, well ahead of accountancy software company Sage.
The success of the Osisoft acquisition rests on the presumption that manufacturers will boost their investment in software over future years to automate more processes, increasing efficiency and cutting costs. Osisoft’s software helps its clients, which include Heineken, to analyse data coming out of their production facilities in real time.
The deal will be financed through a new $3.5 billion rights issue, with majority shareholder Schneider Electric already confirmed as intending to take up its full rights. Another $900 million will be financed from the company’s cash reserves and a newly arranged credit facility. Finally, Aveva will issue shares to J Patrick Kennedy, Osisoft’s septuagenarian founder. He will own around 4% of Aveva on the deal’s completion, which is expected to be finalised later this year.
Aveva chief executive Craig Hayman believes the acquisition will accelerate the company’s role in the digital transformation of industrial companies that have lagged in their adoption of the latest technology, commenting:
“The industrial sector is the last to be digitised at scale.”
Analysts have reacted positively to the deal, with Citi Bank describing it as a “reasonable strategic fit”, with the caveat that there were also risks to combining the businesses that would have to be monitored.
Aveva is the older of the two companies, founded in 1967 as a government-funded research institute with the mission to promote computer-aided design in British industry. It was privatised in 1983 and in 1994 bought out by its management team.
Osisoft was founded by Mr Kennedy, a chemicals engineer, in 1980. The Kennedy family still owns 50.3% of the company, which has benefited from the recent Internet of Things trend which has seen companies increasingly install data gathering devices in their facilities. The founder’s family will receive around $2 billion in cash as well as stock equal to around 4% of Aveva.
44.7% of Osisoft is currently owned by Japanese technology investor Softbank, which invested in the company in 2017. The deal will be a boost to the investor, after a series of misfiring investments such as the billions ploughed into coworking facilities company WeWork, which last year plunged into trouble following a failed IPO. Softbank pulled out of a rescue package earlier this year, after the Covid-19 pandemic further devastated WeWork’s business model.
Aveva expects the combined company’s revenues to reach an annual £1.2 billion, yielding adjusted earnings before interest and tax of £330 million. Osisoft will continue to operate as an independent division after the takeover is completed.
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