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8 September 2017

Third time’s the charm as Schneider buys software-house Aveva

By Jack Vernon

Schneider Electric has finally acquired Aveva, adding the British design software company to its French industrial engineering group. Aveva is now well placed to leverage much of the operational data from IoT sensors and management experience of Schneider at different sites to improve its offering. We expect that this kind of vertical expansion is going to get more common, as established industries embrace IoT tech in their operations.

There is an overlap between two, as Schneider sells software for managing sites using IoT, while Aveva makes software that allows companies to design such facilities (mainly in the oil industry) – enabling Schneider to offer a package of software to a customer the covers both the design and management of a facility.

The first attempt made by Schneider Electric to acquire the software assets of Aveva with its own failed at the 11th hour. Aveva was spooked by issues with its Schneider’s software business, including its tax arrangements and concerns over the valuing of its assets.

Schneider attempted a second time in 2016, but the deal was again rejected by incumbent veteran CEO Richard Longdon. However, at the third attempt Schneider managed to sew up at the deal, reportedly under similar terms that were originally drafted in 2016.

It is believed that former CEO Longdon resisted the deal in 2016 due to the fact he was unprepared to the see Aveva fall outside of his control. Longdon has since retired and the deal talks evidently moved forward under new CEO James Kidd.

Schneider will pay $3bn to combine its own software group with Aveva. The combined group will remain listed in London and continue to have its headquarters in Cambridge, Schneider will own a 60% stake in the software group, giving it control in a lose takeover.

The combined group will hope to build software products used in the design of oil rigs, nuclear power stations, and container ships – all areas that are increasingly adding IoT sensors and data analysis to improve their operations. Aveva already has a strong track record of selling software products that are used in the design of oil facilities.

Schneider has had success in selling software that can be used to manage and monitor those same facilities often collectively referred to as ‘Operational Technology (OT).’ The combined group should be able to offer a more complete software solution, and future products should enable customer to design and then manage a facility once it is operational all in one software package – deepening the customer’s relationship with the Schneider-Aveva.

Aveva has been dependent on the volatile oil market for business, which in the last few years, thanks to a serious crash in oil prices, has seen a sharp decline in new exploration – meaning tougher competition for Aveva, as fewer facilities get constructed. Aveva’s revenues had been growing until 2014, when the oil price slumped and projects in the oil industry were put on hold.

Schneider has clients in the pharmaceutical, food and beverage, and waste sectors, which could be an opportunity for Aveva to expand into – giving Aveva a sales opportunity in those sectors it had previously been unable to penetrate. Schneider also has a large sale presence in the US, something Aveva has not been able to achieve.

Aveva employs 300 people in Cambridge. The deal will add about 100 staff from Schneider that were formerly of the British engineering group Invensy – that Schneider purchased in 2013. At the time, Aveva had also been looking to buy Invensy, but the purchase has yet proved unsuccessful for Schneider. It appears that Schneider is hoping to improve the prospects of the Invensy software division by merging it into Aveva.

Aveva has been acquired at around 25-times its cash earnings. Schneider purchased Invensy for $5.5bn, 43-times its then earnings, and couldn’t make the purchase profitable. Purchasing Aveva at a lower premium and then using it to salvage the software department of Invensy could deliver excellent value for Schneider.

Schneider could have easily purchased the entire company, given its size. It could be seen that Schneider only taking 60% stake in the company indicates it is not totally confident in the deal – but its experience with Invensy might have been a contributing factor.

Schneider has picked up some notable project wins in the last few months, providing management systems for the likes of the Lagos State Electricity Board for their electricity network, and with Dangote for an oil refinery, that will be the world’s largest by production capacity.