| Abstract: | The product development specialist looks to bulk up its customer base and add new modeling capabilities to its portfolio with the purchase of CoCreate. |
| Keywords: | PTC acquisition, PTC CoCreate |
In a move to expand its customer base and add new modeling technology to its portfolio, product lifecycle management software supplier PTC today said it would acquire CoCreate Software GmbH, a provider of CAD modeling products, for about $250 million.
Privately held CoCreate, based in Sindelfingen, Germany, offers the OneSpace Suite, which includes 2D, 3D, and collaboration tools, primarily to the high-tech electronics and machinery industries. It counts among its approximately 5,000 customers such companies as Canon, Fisher Controls, Hewlett-Packard, Matsushita Electric, and NEC. Since 2006, CoCreate has been affiliated with HBK Capital Management, an investment partner.
PTC, which also today announced a 9% increase in revenue as part of its fourth-quarter results, said it expected the acquisition to be completed in the first quarter of fiscal 2008. PTC will finance the acquisition with a combination of $50 million in cash and $210 million in debt, and said it expects the purchase to be dilutive to earnings per share in fiscal 2008.
The sale of CoCreate follows a number of other recent transactions in the PLM market, the most significant of which was the acquisition of UGS by Siemens earlier this year and Oracle's purchase of Agile Software.
On a conference call with financial analysts this morning, PTC officials said the CoCreate acquisition, in addition to expanding PTC's customer base and providing so-called "explicit modeling" technology, will help PTC attain its future growth goals. Those goals, President and Chief Executive Officer C. Richard Harrison said, include $1.5 billion in revenue and 22% operating margins by 2010. "CoCreate helps us reach these goals," he said.
PTC Chief Financial Officer Neil Moses said that 65% of CoCreate's $80 million in annual revenue comes from its 5,000-strong maintenance-paying customer base, which he called an important cross-selling opportunity for PTC products.
Jim Heppelmann, executive vice president and chief product officer of PTC, said that on the technology front, CoCreate will bring to PTC explicit modeling capabilities, which he described as being well-suited to companies wanting design speed rather than design reuse, which will be complementary to PTC's Pro/Engineer product. He said the combination of several technologies — explicit modeling, parametric, 2D, and others — will enable PTC to offer a fully integrated product development system. "The parametric approach is better for highly engineered products," he noted.
Initial reaction to the acquisition announcement from PLM market analysts centered on CoCreate's motivation to sell, as well as what PTC will gain from the purchase.
Kenneth B. Amann, director of research for CIMdata, said that CoCreate needed a partner to help restart growth. "CoCreate hasn't been growing at the market rate," he said. "You see all that maintenance revenue and you have to ask 'Where are they going?' "
In a recent report on the PLM market, CIMdata said that the market grew 10.7% to $20.1 billion in 2006 and would grow at an 8.5% compounded annual growth rate over the next five years. The MCAD piece of the market, CIMdata noted, captured about $13.2 billion in 2006.
During the analysts call, Heppelmann was asked why PTC would pay $250 million, or three times CoCreate's revenue, for a "no-growth" company. "CoCreate has tried a number of things," he said. "The main problem is scale. And they don't have an enterprise PLM solution."
Joe Barkai, program director, Product Lifecycle Strategies, at analyst firm Manufacturing Insights, said the acquisition could give PTC a better position in the small- and medium-size business segment of the PLM market, one of the fastest growing segments of the PLM market overall.
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