March 22, 2004
EDS Selling UGS PLM Solutions For $2.05 Billion
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| by Jeff Rowe - Contributing Editor
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Early last week EDS announced that it had reached an agreement to sell its UGS PLM Solutions unit for $2.05 billion in cash to a group of three private equity firms: Bain Capital, Silver Lake Partners, and Warburg Pincus. The transaction, in which each private equity firm is an equal investor, represents the largest private equity investment ever made in a technology company. So let's take a look at this huge transaction that affects EDS, UGS PLM (including Solid Edge) customers, and the MCAD industry as a whole.
EDS Selling UGS PLM Solutions For $2.05 Billion
EDS announced that it has reached a definitive agreement to sell its UGS PLM Solutions unit for $2.05 billion in cash to a group of three private equity firms - Bain Capital, Silver Lake Partners and Warburg Pincus. UGS PLM Solutions provides product data management, collaboration and design software applications and services. The transaction is expected to close within 90 days, pending customary closing conditions.
"The transaction is another tangible step in the strategic plan we laid out for investors in June 2003," said EDS Chairman and CEO Mike Jordan, who was recruited by the EDS board in March 2003 to lead the company. "We said our ongoing focus will be strengthening our core information technology and business process outsourcing operations and our balance sheet. This transaction supports both priorities and further enhances our competitive position."
Upon closing the transaction, EDS expects to be closer to its announced goal of zero net debt (total debt minus cash and marketable securities on hand) by the end of 2004. The decision to divest UGS PLM Solutions through an IPO or private sale was announced in October 2003, after EDS completed a comprehensive assessment of its business portfolio against its strategic plan built on leveraging IT and BPO growth opportunities.
"While UGS PLM Solutions is an excellent business and has been a solid contributor to EDS, its business is clearly outside of our core focus. As a result, we're essentially divesting a non-core, non-strategic operation, while enabling UGS PLM Solutions to further enhance its future growth," said EDS CFO Bob Swan. "The purchase price clearly shows the strength and potential of this business. The private equity group is receiving an excellent operation, while we bolster our competitive position." Swan said the decision to divest the full unit reflected the significant interest the divestiture generated - and the purchase price, which is about 2.3 times annual revenue.
UGS PLM Solutions provides PLM software and related services, with approximately 42,000 clients and more than 2.8 million seats of technology operating in the market worldwide. UGS PLM Solutions has approximately 5,000 employees. In 2003, UGS PLM Solutions reported revenue of US$897 million and net income of US$104 million. In the second half of 2003, the business achieved 14 percent (8 percent in constant currency) year-over-year revenue growth. EDS will provide further detail and updates to its 2004 forecasts on its first quarter earnings call.
Today's UGS PLM Solutions resulted from the integration of the former operations of companies including Structural Dynamics Research Corporation (SDRC), Engineering Animation Inc. (EAI) and UGS, UGS PLM Solutions has created some of the leading design, collaboration and product data management technologies that ultimately formed the foundation of the PLM industry.
"This agreement validates UGS PLM Solutions' strategy and leadership, while positioning the company for continued growth," said Tony Affuso, president and CEO of UGS PLM Solutions. "Most importantly, the transaction further strengthens our industry-leading client care model. We are delighted to have the opportunity to partner with investors who have significant software experience and a growth-oriented long term approach to building value."
"This transaction is part of the strategic plan we outlined last year to focus on our core information technology and business process outsourcing businesses," said EDS Chief Financial Officer Bob Swan. "The divestiture significantly enhances our competitive position while strengthening our balance sheet."
UGS PLM Solutions delivers integrated technology and services supporting the entire lifecycle of a product - from concept and development to distribution and delivery. The global market for PLM software and services is expected to grow by a compound annual growth rate of 8 percent through 2008 to more than US$14.5 billion, according to CIMdata. Through 2008, CIMdata expects the product data management and collaboration segment of the PLM market, which UGS PLM Solutions leads on the strength of its Teamcenter portfolio, to grow 17 percent, compounded annually, to nearly US$5 billion.
"We are excited to partner with Silver Lake and Warburg Pincus to acquire the technology and market leader in the PLM business, and to support a talented team as they further build what is already a successful global enterprise," said Andrew Balson, a Managing Director at Bain Capital. "UGS PLM Solutions has earned its leadership position by developing mission critical software and integrated services for leading companies in design intensive industries. We are committed to investing to grow the business by continually increasing the value that the company's technologies deliver to customers."
"UGS PLM Solutions is the undisputed market share and technology leader in the rapidly expanding PLM industry. We like investing in proven winners and look forward to working with CEO Tony Affuso to grow this outstanding software franchise," said David Roux, founding principal of Silver Lake Partners.
"We look for these types of opportunities -- to invest in market leading businesses that create sustainable value. And, from its established position of global strength in the core design and engineering software market, UGS PLM Solutions is at the forefront of innovative software vendors that are creating real business value," said Joseph P. Landy, co-president of Warburg Pincus.
"When complete, the transaction will enable UGS PLM Solutions to operate optimally as an independent software company," Affuso said. "We look forward to working with our new investment partners and building on our momentum in the PLM space."
A short word on the three investors:
Bain Capital is a global private investment firm that manages several pools of capital including private equity, venture capital, public equity and high-yield and mezzanine debt with more than $17 billion in assets under management. Since its inception in 1984, the firm has made private equity investments in over 225 companies around the world.
Silver Lake is a private equity partnership focused exclusively on large-scale investing in technology. Silver Lake seeks to achieve superior returns by investing with the strategic insight of an experienced industry participant, the operating skill of a world-class manager, and the financial expertise of a disciplined private equity investor.
Warburg Pincus is a private equity investor firm currently has approximately $9 billion under management and $5 billion available for investment in a range of sectors including information and communication technology, business services, energy, financial services and technologies, healthcare and life sciences, media and real estate. The firm has invested approximately $4.8 billion in 140 technology companies.
Evercore Partners acted as financial advisor to EDS in this transaction.
Well, after weeks and months of speculation, the suspense is finally over. But first, let's step back in time and see how the deal evolved and transpired.
EDS said in October 2003 that it planned to complete an initial public offering (IPO) or a sale of a minority stake of its UGS PLM Solutions unit, a software unit that had outperformed its main outsourcing business. Things had been looking up for UGS' PLM business - sales rose to $894 million in 2003 from $879 million in 2002. But, after posting a deep quarterly loss and forecasting earnings that were only half of analysts' estimates for 2004, EDS said it would not rule out the chance of selling the whole subsidiary, which the company said could be worth about $1.8 billion.
In February 2004, a Financial Times story said EDS Chief Executive Michael Jordan valued the business at 1.5 times sales, or about $1.2 billion. However, Jeff Baum, director of investor relations, said the company would not accept an offer for less than two times 2003 sales, or $1.8 billion.
On February 9, EDS issued the following brief statement regarding its UGS PLM Solutions subsidiary:
EDS has seen significant interest from several parties regarding UGS PLM Solutions.
The company is considering the private sale of up to 100% of its UGS PLM Solutions subsidiary, as well as the sale of a minority stake in the unit through an initial public offering as indicated in its October 13, 2003 press release.
EDS expects the valuation for a private sale of a majority stake in UGS PLM Solutions would exceed two times the unit's 2003 revenues of approximately $900 million.
Things regarding a possible transaction (understandably) stayed pretty quiet until last week when the acquisition announcement was made. So, at $2.05 billion, EDS got what it wanted originally, and then some.
From the beginning it was pretty clear that UGS PLM probably would not be acquired by a competitor, staving off, at least for now, MCAD market volatility and further MCAD vendor consolidation. Since February when things started to heat up and get serious, I didn't expect this acquisition to drag out for many months or years - there was just too much at stake for EDS, customers, and possible suitors. EDS needed the cash that a sale would bring and chose the best route for acquisition - three equal partners.
It appears as though the current management team (including the current president, Tony Affuso) will stay in place with the UGS PLM NX product line continuing to be developed and supported as in the past with minimal disruption. A new board of directors will be formed, but EDS will no longer have a seat.
According to Jim Phelan, director of Marcom for UGS PLM Solutions, the acquisition will let the company continue to conduct business as usual. "The acquisition will let us react more quickly, respond to market needs, and act more independently," he said.
I posed the following questions to Mr. Phelan regarding the acquisition and below are his responses:
Who will decide about a name change for the new organization? Will branding be any different in the short term?
There are no immediate plans for a name change or any changes to product branding. Those decisions would be made by UGS PLM company management in concert with the UGS PLM Solutions board of directors where appropriate.
When is the first quarter earnings call when more information will be disclosed?
EDS' Q1 earnings call is scheduled for April 26.
Do you expect UGS PLM employee levels to remain stable for at least the foreseeable future?
It appears that present management will stay in place, correct?
Where does Solid Edge figure in equation? Is it safe to say that it will remain part of the UGS PLM mix, or might it get sold off because it somewhat dilutes potential UGS PLM sales?
There are no plans to change the positioning of Solid Edge within the UGS PLM mix.
Will R&D efforts remain at their current levels?
Yes. The philosophy of the investment partners is to focus on high quality solutions and world-class customer care. As a result, investments in R&D will be maintained at a high level to ensure the industry leading quality and functionality our customers have come to expect.
Is anything/will anything be done to assure current customers that product development and product support will continue at least at their current levels.
Yes. Keeping our customers informed has always been a high priority for UGS PLM Solutions and this situation is no different. We have already communicated directly with several key customers and a letter from Tony Affuso is being distributed worldwide by our global sales force to assure customers that we will continue to provide them with the same high level of service and support that they expect and deserve.
Is it safe to say that the transaction will be complete by July 1, 2004?
Yes, the transaction is expected to be complete within 60 to 90 days after the announcement date of March 14, 2004.
All in all, this sounds like a pretty positive move for all parties concerned - customers, EDS, and the acquiring partners. A win-win-win proposition, if you will. Just the sheer magnitude of this acquisition and its customer base are reasons enough to follow how UGS PLM continues to evolve in the ultra-competitive MCAD marketplace.
Delmia V5 R13 - Detailing And Validating Digital Manufacturing Processes
Delmia Corp., a Dassault Systemes company announced the release of DELMIA Version 5 Release 13 (V5R13). DELMIA, for the engineering of lean manufacturing processes, is part of Dassault Systemes' product lifecycle management (PLM) portfolio, also comprised of CATIA, for collaborative product development, and ENOVIA and SMARTEAM, for product data and life cycle management, collaboration, and decision support.
DELMIA V5R13 has been designed in partnership with several manufacturers and their supply chains in order to support major new product programs. The new release introduces key innovations that advance the collaborative definition of manufacturing processes.
For example, these new capabilities enable an OEM to export a portion of its manufacturing process plan, including product, process and resource (PPR) data, to a supplier for detailing and validation. Once detailing is completed, the OEM can reconcile any changes back into the DELMIA manufacturing hub. Collaboration between the OEM and its supplier are more efficient and effective and aid in the overall streamlining of the process planning efforts.
"Collaboration throughout the extended enterprise is a necessity for all manufacturing industries where connectivity between OEMs and suppliers are critical for competitiveness, said Philippe Charles, CEO, Delmia Corp. "DELMIA V5R13 is a major step forward toward enabling innovation in manufacturing engineering."
V5R13 further supports the production use of DELMIA's solution for manufacturing process planning, detailing, optimization, and validation in the automotive and aerospace domains. DELMIA's V5 Process Planning Solutions provide breakthrough technologies that dramatically reduce the amount of time it takes to update large product structures between the engineering hub and the manufacturing hub. Enhancements for incremental updates and partial product transfer reduce this update time by as much as 90%, as compared to previous releases.
V5R13 now enables the process planner to reuse a single product model within the process plan (for example, passenger seats in an airplane) while storing instance-specific attribute data. This new capability streamlines the synchronization between the engineering and manufacturing hubs.
The DELMIA V5R13 product portfolio brings the following major features and capabilities:
Collaboration between the OEM and suppliers - DELMIA V5R13 lets an OEM export its product, process, and resource (PPR) data from the manufacturing hub for detailing by a supplier. Users can then reconcile process plans detailed by a supplier with the OEM master plan stored in the manufacturing hub.
Reduced manufacturing engineering time - DELMIA V5R13 introduces batch and incremental updates and partial product transfer to reduce the amount of time it takes manufacturing engineers to update large product structures between the engineering hub and the manufacturing hub
Evaluate the impact of change - New automatic line balancing features in DELMIA V5R13 let process engineers evaluate the impact of multiple model mixes in the production system so that the optimal process plan and layout of the manufacturing line can be achieved.
Leverage generative tooling designs created with CATIA - DELMIA V5R13 enables tooling designers to take advantage of resources and tooling created in CATIA with product knowledge template features. Designers can create tooling models that will automatically adapt to changes in the product model, minimizing the amount of time the process planner spends replacing tooling models when product designs change. For example, the clamps of a fixture can automatically be positioned based on feature positions, such as location holes, on a given product.
Provide "As Manufactured" detail to the shop floor - DELMIA V5R13 extends its openness to include XML interfaces that facilitate bi-directional communication with various Manufacturing Execution Systems (MES). With this capability, shop floor technicians can pass critical as-built, labor, and change order data to the MES system with touch screen-compatible interfaces.
DELMIA has an interesting history that began less than four years ago in June of 2000. Dassault Systemes created DELMIA as a high-end brand for so-called digital manufacturing, and is comprised of three companies and technology sets:
Deneb Robotics, a provider of robotics programming software that has families of CAD-independent, physics-based products for simulation and digital manufacturing.
DELTA, a supplier of digital manufacturing software that lets manufacturers virtually define and simulate general manufacturing activities on a factory floor.
SAFEWORK that provides human-factors software for ergonomic simulation in a manufacturing context.
DELMIA for managing manufacturing processes is one of four major product groupings that comprise Dassault's PLM portfolio. The others being CATIA (for CAD/CAM), ENOVIA (for collaboration and product development management), and SMARTEAM (for product data management). Employed singly or in combination, these are all very advanced toolsets for handling complex products and processes. With this announcement, all four of the major Dassault product groupings are now at the same V5R13 level, and one would think, well tuned to work with each other for optimizing a flexible/adaptable manufacturing environment. DELMIA, like the other product groupings in Dassault's PLM portfolio are best suited for
large-scale design, engineering, and manufacturing operations, such as automotive and aerospace. This large-scale suitability is probably the primary reason that in North America, the largest customers of the Dassault PLM portfolio are Boeing and DaimlerChrysler.
Jeffrey Rowe is the editor and publisher of MCADCafé and MCAD Weekly Review. He can be reached at
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-- Jeff Rowe, MCADCafe.com Contributing Editor.