On Tuesday, it was announced that Aveva, the Cambridge, U.K.-based industrial and predictive analytics software company that is majority-owned by European multinational Schneider Electric, has agreed to pay $5 billion to purchase all of OSISoft. The latter company is a provider of real-time data software that has become the unofficial technology cornerstone of critical infrastructure, a linchpin of the global industrial economy, and a key driver of the fast-developing Industrial Internet of Things (IIoT).

Under terms of the deal, Aveva will acquire 100% of OSISoft, valuing the company at 32.9x trailing twelve-month enterprise value to EBIT, which is broadly in line with AVEVA’s own multiple. According to documentation from Aveva, the acquisition will be funded through a combined rights issue, cash on balance sheet, new debt facilities and ordinary share issuance. AVEVA expects the deal to be earnings-accretive by March 2022, before synergies.

Digital transformation

OSISoft is currently 50.3% owned by Estudillo Corp., a holding company belonging to founder and CEO Dr. J. Patrick Kennedy, who will remain with the company in an advisory capacity and as chairman emeritus. Another 44.7% is owned by SB/OSI, a subsidiary of Japanese multinational conglomerate SoftBank, while the remaining 5% is held by MDT Holdings, a division of Japan’s Mitsui Group.

SoftBank, a major OSISoft shareholder since 2017, announced earlier this year that it would sell $41 billion in assets in a bid to raise cash, reduce its debt burden and buy back shares amid economic turmoil related to the covid-19 pandemic.

In a statement, Dr. Kennedy said: “Together we will be better able to service the largest digital transformation projects in history, including across industry 4.0+ and IIoT. AVEVA’s interest in OSIsoft is a testament to our talented team, and the extraordinary value of the PI System as the real-time streaming data infrastructure that powers the industrial world.”

“Combining AVEVA and OSISoft is yet another significant milestone in our journey to achieving the ambitious growth goals that we have set,” Aveva CEO Craig Hayman added. “This will not only help us serve existing customers better but also open the flood gates to new opportunities which will accelerate the delivery of our digitization vision.”

Magnum PI

OSISoft is built around a software-based operational intelligence application, PI, which has become ubiquitous in global industrial systems, particularly those in the continuous process market. PI is the operating software for two-thirds of all industrial companies in the Global Fortune 500, in 127 countries.

PI is used in more than 1,000 of the world’s top power and utility companies (including the majority of ISOs and RTOs in the United States and 17 of the top 20 wind generation companies worldwide), 38 of the Global Fortune Top 40 oil and gas companies, every single one of the Global Fortune Top 10 metal and mining companies, and 37 of 50 of the world’s largest chemical and petrochemical companies.

PI enables customers to collect, normalize, store and stream operational data in high-fidelity and in real-time, to applications, analytics and AI (artificial intelligence) and ML (machine-learning) platforms, enabling massive cloud-enabled scale and data sharing across enterprises.

In addition to accelerating the market adoption and expansion of cloud-based offerings, AVEVA says the acquisition will strengthen its position in the power and utilities, chemicals, petrochemicals segments, and will further diversify its industry exposure, decreasing the oil and gas segment’s contribution to its pro forma revenue from circa 40% to circa 35%.

Mega footprint

In a presentation to investors and stakeholders on Tuesday, AVEVA Deputy CEO and CFO James Kidd called OSISoft “a company we admired for a long time,” noting its consistent track record of 10% compound annualized growth (CAGR) over the past 10 years, and 18% growth in adjusted EBIT over the past three years alone. He said that this growth trajectory has been sustained over the past six months, and that OsiSoft’s margin profile, similar to AVEVA, has included very little service revenue as part of the mix, helping to drive its strong operating leverage.

Noting that the deal is motivated primarily by revenue synergies and future growth, rather than cost savings, AVEVA CEO Craig Hayman added that OSISoft’s first value-add would be its sizable presence in the U.S. market—where PI is widely used in American water and power utilities, including in the fast-growing market for microgrids—which will complement AVEVA’s significant footprint in China, South Korea and Japan, and provide a springboard for growth into the EMEA market.

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