Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Being late to a hot investment trend never comes cheap. So it has proved for Siemens. The German conglomerate is shelling out about $10bn for Altair, valuing the US industrial software maker at nearly 70 times this year’s expected ebitda. Throwing money about is rarely a recipe for a successful acquisition. But this deal could stack up for Siemens’ investors if it leads to a bigger rejig.
Altair’s high pricetag reflects its scarcity. It is one of a dwindling number of assets in a rapidly consolidating market. Earlier this year, Synopsis announced the $35bn acquisition of Ansys, while Cadence bought Beta for $1.24bn. That helps explain why Altair traded at 58 times ebitda prior to the potential deal being leaked.
A closer look at Altair’s prospects should mitigate — although not eradicate — valuation concerns.
Industrial software is a growth spot. Making things, whether headphones, watches, cars or fridges, used to be a nuts and bolts affair. As products have become more complex and data more abundant, manufacturers now want to build a ‘digital twin’ first and simulate how it will perform in different circumstances — when the product is hot or is used heavily. This is the service industrial software companies provide.
This deal is one of those rare occasions in which the concept of ‘cross-selling revenue synergies’ should not immediately send investors running for the hills, despite the tongue-twisting jargon. Siemens has a lot of software clients, but it lacked very specific capabilities in mechanical and electromagnetic simulation which Altair has. Conceptually, at least, the conglomerate group should now be able to sell its customers a more complete product.
Siemens is making some heroic assumptions, though. Adding together cost cuts of $150mn and mooted revenue synergies of $500mn (on Altair’s current margin), yields $260mn of extra ebitda, or 1.8 times that forecast for this year. Whichever way you cut it, Altair is an expensive buy.
But Siemens’ investors could find the acquisition useful. Their key problem is that, stripping out the conglomerate’s 75 per cent stake in Siemens Healthineers — the medical equipment maker spun off in 2018 — the group trades at a roughly 30 per cent discount to peers, reckons Nicholas Green at Bernstein.
Adding to core growth areas such as software might help reduce this, especially if acquisitions are financed by selling down other assets. Already, Siemens has flogged Innomotics, its large motors division, for $3.5bn. It has suggested it may sell 5 per cent of Healthineers to manage leverage. If the Altair bet prompts the group to tidy up its corporate structure, investors will be generous in judging its merits.
Source link
