Jeffrey Rowe has more than 40 years of experience in all aspects of industrial design, mechanical engineering, and manufacturing. On the publishing side, he has written well over 1,000 articles for CAD, CAM, CAE, and other technical publications, as well as consulting in many capacities in the … More »
Is CD-adapco A Good $1 Billion Fit For Siemens?
January 28th, 2016 by Jeff Rowe
This week Siemens announced that it was hitching a new car to its acquisition train: CD-adapco. With a purchase price $970 million, CD-adapco is a global engineering simulation company with software that covers a wide range of engineering disciplines including fluid dynamics, solid mechanics, heat transfer, particle dynamics, reactant flow, electrochemistry, and acoustics. It is probably best known for its combustion engine simulation capabilities.
Established in 1980 and still controlled by its founders, the company has about 900 employees and approximately $200 million in annual revenue and an annual growth rate of 15 percent for the past five years, according to its website. Its main competitor in engine simulation software is Ansys.
The sale comes after CD-adapco’s co-founder and CEO Steve MacDonald passed away last September. He was succeeded by his widow, Sharron MacDonald, who was named interim CEO and president
“As part of its Vision 2020, Siemens is acquiring CD-adapco and sharpening its focus on growth in digital business and expanding its portfolio in the area of industry software. Simulation software is key to enabling customers to bring better products to the market faster and at less cost. With CD-adapco, we’re acquiring an established technology leader that will allow us to supplement our world-class industry software portfolio and deliver on our strategy to further expand our digital enterprise portfolio,” said Klaus Helmrich, member of the Managing Board of Siemens.
Siemens Simulation Acquisition Chronology
CD-adapco simulation tools are led by its flagship product, STAR-CCM+. The company currently has over 3,200 customers worldwide, and its software is currently used by 14 of the 15 largest carmakers, by all of the top ten suppliers to the aerospace industry, and by nine of the ten largest manufacturers in the energy and marine sectors.
The company has a positive storied past. For example, NASA hired CD-adapco to help with simulation of structural engineering problems following the Space Challenger disaster in 1986. Car manufacturer Renault SA has used CD-adapco software to simulate engine combustion, cooling and exhaust for Formula One race cars.
CD-adapco CEO and President Sharron MacDonald said, “I am pleased for both the employees and the customers of CD-adapco. The opportunities that come with the acquisition by Siemens are endless. The vision of our founders will be realized in the integration of these world-class engineering and manufacturing technologies and a business strategy that will allow engineering simulation to impact more products and companies than ever before.”
CD-adapco will be integrated into the PLM software business of Siemens’ Digital Factory (DF) Division, providing automation technology and PLM software. “By adding advanced engineering simulation tools such as CFD to our portfolio and experienced experts in the field to our organization, we’re greatly enhancing our core competencies for model-based simulation that creates a very precise digital twin of the product,” said Anton Huber, CEO of the Digital Factory Division.
The Digital Factory Division bundles all Siemens’ businesses serving the discrete manufacturing sectors – for example, car and aircraft construction, machine construction and electronics. Its portfolio includes high-performance, fully integrated software and hardware technologies for implementing data-technical links between development, production, and suppliers.
Siemens’s Digital Factory unit is the most profitable of its nine divisions, and was significantly strengthened by the $700+ million acquisition of Belgian software maker LMS International in 2012.
As far as I know, Siemens is arguably the only company offering technologies that comprehensively merge the virtual world of product development and the real world of manufacturing. New products can be designed, tested and optimized digitally, while the corresponding production processes are being planned and implemented.
Since taking over Siemens as CEO two years ago, former finance chief Joe Kaeser has set out to remake the German company and make it more profitable and by selling off non-core units, as well as acquiring companies with complementary technologies.
CD-adapco is Siemens’ biggest PLM software firm acquisition since it bought Texas-based UGS for $3.5 billion in 2007. It has made a series of major acquisitions in since then, including four in 2012.
Siemens has increasingly had to compete with software companies who can develop technology faster because they have a narrower focus. By comparison, five percent of Siemens’ 350,000 (that’s still 17,500) employees are software engineers. In December Siemens said that it would raise its research and development budget as it seeks to maintain an edge in technology innovation over competitor General Electric.
Siemens is “sharpening its focus on growth in digital business and expanding its portfolio in the area of industry software,” the company said in the statement.
Siemens CEO Joe Kaeser said, “CD-adapco is a perfect fit to expand on our strategy to further strengthen our leading industrial software portfolio. We started building this as early as in 2007 with the UGS acquisition for product design and development. With CD-adapco, we add a spectrum of fluid simulations to our mechanical simulation and testing competency which we acquired with LMS, a Belgian company, in 2012.”
Regarding the sizable investment for acquiring CD-adapco, Siemens CFO Ralf Thomas said that he sees CD-adapco as having a positive impact on both revenue and profit, “eventually”. He said, “Whenever we acquire a target we look into the industry-specific environment and also conclude what is an acceptable and an aggressive plan in terms to get the payback done”.
It’s still very early in the game, but Siemens has already given a strong endorsement of its software strategy that now includes the CD-adapco as part of the mix. It may take time to realize the positive impact of the acquisition of CD-adapco, but outwardly it seems like a good investment and fit for Siemens.