AVEVA Group announced that it would acquire OSISoft in a transaction worth roughly $5 billion, resulting in the largest industrial software company in the world. The deal is set to create a powerful combined company – assuming the transaction closes and integrates effectively. Management projects that the combined company would have annual revenues of around £1.2 billion and adjusted EBIT of £330 million. AVEVA is a global leader in engineering and industrial software, with engineering, planning and operations, asset performance, and monitoring and control solutions and over 16,000 customers. AVEVA also mentioned that demand for its own software has been robust despite coronavirus-related disruption, with demand for cloud solutions particularly strong, following a period where reported revenues declined by roughly 5% resulting from a transition to subscription pricing.  

The deal has several moving parts. The acquisition will be funded by a $3.5 billion rights issue. SoftBank owns a 45% stake in OSIsoft and founder Dr. Patrick Kennedy holds a 50.3% stake and will become chairman emeritus and hold roughly 4% of the combined company. SoftBank bought its OSIsoft stake in 2017 from early investors Kleiner Perkins, TCV and Tola Capital through its $100 billion Vision Fund. The deal represents a needed win for the Vision Fund, which has experienced large losses as the value of stakes in tech companies like Uber decreased dramatically. Schneider Electric holds 60% of AVEVA shares and has said it will vote for the deal and participate in the rights issue to fund the acquisition. The deal promises to strengthen Schneider Electric’s own portfolio of industrial software analytics offerings via enhanced integration. 

OSISoft is the leading provider of data aggregation and historian software for industrial customers. The company’s PI (Plant Information Systems) software enables customers to collect, normalize, store, and stream real-time, high-fidelity operational data to applications, analytics, and AI and ML platforms. PI System acts as a single system of record for operations data, designed for massive cloud-enabled scale and data sharing across enterprises, and enables insightful operations decision making.

OSIsoft is a founder-led business founded in 1980. The company has achieved consistent growth and innovation with a 10% CAGR, strong margins and strong customer retention with less than 2% churn. In addition to many OEMs that include SAP, OSISoft’s software provides the basis for Schneider Electric’s EcoStruxure platform. EcoStruxure collects data from building or factory energy monitoring and delivery systems then puts it into a Plant Information System, where applications like the EcoStruxure Smart Metering Advisor (for utilities) can analyze and help optimize the system and its components.

Why the deal is important

The combination creates an industrial software leader, with the largest operational software provider with the largest provider of industrial analytic software. Both companies are committed to driving digital transformation for their clients, and the potential product integration promises to be powerful. While the deal looks solid on paper, the key test will be ensuring the successful integration of the businesses, organizations and cultures. Given that AVEVA is located in the U.K. and OSISoft in the U.S., there are not a lot a precedents of successful tech acquisitions led by U.K. firms (although SAP has been successful as an acquirer of many U.S. software companies). The price is also not cheap – AVEVA is paying an adjusted EBIT multiple of 32.8 times based on the trailing 12 months through June 30th for OSIsoft, but this is in line with the current AVEVA multiple. The hefty multiple should signal more broadly to the market a boost of confidence in M&A, and we would not be surprised to see the pace of industrial technology M&A accelerate in coming months.   

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