Continuing a long-term consolidation trend in the manufacturing execution system (MES) market, Visiprise Inc. said it plans to acquire HMS Software Inc. Terms of the deal were not announced.
The deal, expected to close by November, combines two leading, vertical industry-focused best-of-breed MES software vendors and gives Atlanta-based Visiprise a larger customer base to which it can cross-sell products and across which it can spread costs.
Visiprise, which was formed two-and-a-half years ago through the combination of Teradyne's Manufacturing Software Group and NetVendor, has been focused primarily on high-tech manufacturing customers, although about 40% of its customers are in aerospace and defense (A&D). HMS, of Concord, MA, was founded in 1992, and focuses exclusively on the A&D market.
Visiprise estimated that the combined companies, both of which are cash flow positive, will have annual revenues of about $30 million. Visiprise said that, in order to pay for the acquisition, it doubled the size of a $16 million line of venture capital funding announced in August.
The acquisition makes sense for Visiprise for a number of reasons, said Simon Jacobson, an analyst at AMR Research in Boston. First, the deal brings Visiprise to A&D market share parity with iBaset of Foothill Ranch, CA, which had been the leader in the space. Second, said Jacobson, from a functional point of view, HMS helps fill out Visiprise's product line by adding computer-aided process planning (CAPP) capability, which has been the core of HMS' product offering.
Third, said Jacobson, by increasing Visiprise's size, the deal will raise the company's importance to current key partners such as SAP and UGS.
"It's a good deal for Visiprise," said Jacobson. "The CAPP capability allows them to address the final assembly piece of aerospace and defense which previously they hadn't been able to address."
Visiprise does not expect to reduce headcount of the combined company which, after the acquisition, will number 270, said Carter Johnson, the company's vice president for strategy and business development. Between them, Visiprise and HMS claim 200 customers.
The fit between Visiprise and HMS also extends to the product development realm. HMS has been attempting to engineer a migration of its product from client/server to J2EE/Java technology, a transition that Visiprise made soon after its founding.
Visiprise expects to help HMS accelerate that transition by both supplementing the latter's technical know-how and by helping HMS customers migrate to the new platform. Rewriting of the HMS software will take most of 2006, said Carter.
The acquisition will prompt a reorganization at Visiprise. The company, said Johnson, will be split into three distinct, industry-focused independent business units. One, focusing on Visiprise's traditional high-tech manufacturing market, will be headed by product management vice president Mike Lackey. A second, addressing the aerospace and defense market, will be headed by HMS president and co-founder Alex Houtzeel and co-founder Rob McNiff.
A third new unit, focusing on the automotive market, will be lead by Lackey.
The three business units will be responsible for requirements analysis, market support and marketing. Eventually, said Johnson, they will become profit/loss centers.
The automotive market has historically not been a focus for either Visiprise or HMS. The combination of HMS' process planning and Visiprise's execution software will have applications in the automotive market where OEMs are increasingly focused on planning for quality and, because of regulatory requirements, on product traceability, said Carter.
While the HMS and Visiprise products will by managed by different business units, the company does plan to merge some product modules, said Johnson. Visibility and reporting layers of the product lines will likely be merged, said Johnson, and the nonconformance reporting piece of the HMS product line, which already has been ported to Java, may be used within the Visiprise product line.
HMS was motivated to join with Visiprise mainly as a way to stimulate growth, said Houtzeel. Although HMS had won about 40 large A&D customers, "We came to believe that our footprint in A&D long term was not sufficient to allow us to expand at a fast enough rate," said Houtzeel. "We started to think, 'Where else can we go?'"
Combining with Visiprise, said Houtzeel, will allow HMS to address new markets such as automotive.
The deal is the latest in a long series of MES acquisitions that has included the 2002 purchase of Intellution by GE Fanuc, the 2003 purchase of US Data by Technomatix and the 2004 purchase of Technomatix by UGS.
The latest acquisition, however, comes at a time when the long-dormant MES market has begun to experience growth. Spurred in part by regulatory requirements, manufacturers pushed overall MES spending to over $1 billion for the first time in 2004, according to AMR.
MES spending among A&D manufacturers has been among the fastest growing segments, jumping 150% between 2001 and 2004 to $57 million, AMR estimates.
Visiprise officials predicted that consolidation among MES software vendors will continue. In fact, said Carter, Visiprise plans more acquisitions.
Automotive-focused MES vendors will be among Visiprise's targets, he said.
"[The HMS acquisition] will highlight the fact that more is to come," said Johnson.