AVEVA Group plc (LON:AVV), a global leader in industrial software, announces that it has reached agreement on the terms of an acquisition of OSIsoft, at an enterprise value of $5.0 billion.
Founded in 1980 by Dr. J. Patrick Kennedy, OSIsoft is a global leader in real-time industrial data software and services. Its PI System is the system of record for customers for data capture, storage, analysis and sharing of real-time industrial sensor-based data across all operations, enabling customers to connect disparate sources of time-series data in an efficient and cost-effective manner. Through OSIsoft’s PI System, customers draw insights, make better decisions, optimise operations, and drive digital transformation.
OSIsoft is headquartered in California, USA, and has approximately 1,400 employees. OSIsoft’s PI System is used by its customers across 14,000 sites in 127 countries and is widely utilised in the process industries such as manufacturing, energy, utilities, pharmaceuticals, and life sciences, as well as within data centre facilities and across the public sector including federal government. OSIsoft works with over 1,000 of the world’s leading power and utilities companies, 38 of the Global Fortune Top 40 oil & gas companies, all of the Global Fortune Top 10 metals and mining companies, 37 out of 50 of the world’s largest chemical and petro-chemical companies and 9 out of 10 of the Global Fortune Top 10 pharmaceutical companies. Furthermore, as businesses deploy increasing levels of sensor-enabled equipment, more assets are streaming more data, increasing the need for and value derived from the PI System.
OSIsoft has a strong track record of organic growth and cash generation, with revenue growing at a 10.3% CAGR over the last 10 years (2009-2019). In the period from 2016 to 2019, OSIsoft delivered a revenue CAGR of 9.7% and an Adjusted EBIT CAGR of 18.5%. This strong growth continued this year as the imperative for digital transformation has continued through the COVID-19 crisis, with year over year revenue growth of 10.0% in the six months ended 30 June 2020. In the twelve months ended 30 June 2020, OSIsoft had revenue of $488.5 million and Adjusted EBIT of $152.2 million1.
1 FY2016-2019 CAGRs are shown according to ASC 605. H1 2019 and TTM to 30 June 2020 figures are shown according to ASC 606. See Appendix for details.
OSIsoft is currently owned by three shareholders:
· Estudillo Holdings Corp. (“Estudillo”), a company majority owned by Dr. J. Patrick Kennedy and his family, which holds a 50.3% stake;
· SB/OSI, Inc. (“SoftBank”), a company owned by SoftBank Group, which holds a 44.7% stake; and
· MDT Holding, Inc. (“Mitsui”), a company owned by Mitsui & Co., Ltd, which holds a 5.0% stake.
The Acquisition to form the “Enlarged Group” is a Class 1 transaction for AVEVA under the Listing Rules of the Financial Conduct Authority. A combined circular and prospectus containing further details on the Acquisition, the recommendation of AVEVA’s board of directors , the terms of the proposed rights issue, and the notice of the general meeting of the Company (to be held to approve, amongst other matters, the Acquisition and to authorise the directors to allot shares in connection with the Rights Issue and the Acquisition) is expected to be sent to AVEVA shareholders in October or early November 2020.
Schneider Electric SE, which currently indirectly holds approximately 60% of the issued ordinary shares of AVEVA, has irrevocably committed to vote in favour of the Acquisition and fully subscribe for shares pursuant to the Rights Issue on a pro rata basis.
Subject to satisfaction of the conditions to the Acquisition, completion of the Acquisition is expected to occur around the end of the year.
Key Highlights of the Acquisition
The Board expects that the Acquisition will, among other things:
· Strengthen AVEVA’s position as a global leader in industrial software, with combined pro forma revenue of c.£1.2 billion and Adjusted EBIT of c.£330 million (c.28% margin) for the Enlarged Group;
· Combine the complementary product offerings of AVEVA and OSIsoft – bringing together industrial software and data management – capitalising on the technological megatrends that are driving digital transformation of the industrial world as efficiency, flexibility, sustainability and resilience become increasingly urgent requirements for customers:
- OSIsoft’s PI System is a very scalable and robust enterprise level data historian platform, which will be a key enabler of a number of AVEVA solutions, in particular enhancing the Digital Twin, HMI/SCADA, Manufacturing Execution System and Asset Performance, with more inputs and connectivity to feed AI-infused and cloud-based solutions;
- AVEVA’s and OSIsoft’s solutions will combine to create a leading Industrial Internet of Things (IIoT) portfolio, which will continue to be platform and hardware agnostic, meaning that it will be able to communicate with diverse devices using different operating systems;
- The combined solution set will optimise engineering, operations and performance, with unprecedented efficiency and value as a result of the integration of both businesses; and
- AVEVA will be able to accelerate the market adoption and expansion of OSIsoft Cloud Services (OCS) and other cloud-based offerings, which recently entered into an early adopter program and provide OSIsoft’s industry leading data management capability in a native cloud environment;
· Enable AVEVA to broaden and deepen its relationships with both existing and new customers across the highly complementary, global customer bases. AVEVA and OSIsoft have a significant shared customer base, which provides synergies in multiple industries, enabling product integration and customer value;
· Strengthen AVEVA’s position in the power & utilities and chemicals & petrochemicals segments and add stronger positions in the pharmaceutical, food & beverage and life sciences segments. AVEVA’s industry exposure will also be further diversified with the oil & gas segment’s contribution to pro forma revenue expected to decrease from c.40% to c.35%;
· Create cross selling opportunities across the Americas, EMEA and Asia Pacific, with each region contributing c.41%, c.36% and c.23%, respectively, to the Enlarged Group’s pro forma revenue;
· Support delivery of AVEVA’s medium term targets and enhance the Enlarged Group’s long-term growth opportunity, with OSIsoft’s strong historical growth, recurring revenue and margins closely aligned with AVEVA’s own targets, and significant further upside through operational leverage, cost and revenue synergies;
· Create additional value for Shareholders through the potential for material cross-sell and upsell revenue synergies owing to the high degree of complementarity between the two product portfolios and a significantly larger customer base in expanded geographies and industries;
· Meaningful cost synergies are expected to be achieved, driven by operational efficiencies through the optimisation of cost structures such as elimination of overlaps, increased utilisation of delivery centres, and integration of corporate and administrative functions;
· Create material cash tax savings over a 15 year period as a result of intangible assets created by the Acquisition that can be amortised for tax purposes; and
· Be earnings accretive in AVEVA’s financial year ending 31 March 2022, before synergies.
Key terms of the Acquisition
The key terms of the Acquisition include:
· Acquisition of OSIsoft for an enterprise value of $5.0 billion, on a cash-free and debt-free basis, assuming a normalised level of working capital, and subject to customary completion adjustments;
· $5.0 billion represents a multiple of 32.9x EV / Adjusted TTM EBIT, broadly in line with AVEVA’s multiple;
· Acquisition is expected to be funded by a combination of a capital raise by way of the Rights Issue, cash on balance sheet, new debt facilities and issuing new Ordinary Shares to one of the selling shareholders, as follows:
- Approximately 12% ($0.6 billion) of the total consideration will be paid to Estudillo, in newly issued Ordinary Shares2, of which Estudillo will distribute approximately 90% of the shares to affiliates of Dr. J. Patrick Kennedy and 10% to other shareholders in Estudillo; and
- Approximately 88% ($4.4 billion) of the total consideration will be paid in cash, which will be funded by a combination of:
– c.$3.5 billion from the proceeds of the proposed Rights Issue3; and
– c.$0.9 billion from existing cash on balance sheet and new debt facilities, resulting in pro forma net leverage of 1.9x EBITDA for the Enlarged Group;
· OSIsoft’s founder, Dr. J. Patrick Kennedy, will remain involved in the business through his appointment to the newly established (non-Board) role of Chairman Emeritus and ongoing share ownership of >4% in the Enlarged Group, in order to support the delivery of the full strategic, operational and financial benefits of the Acquisition;
· PI to be established as a business unit within the Enlarged Group, and AVEVA plans to establish retention and incentive arrangements with key OSIsoft management and employees in order to ensure the continued success of OSIsoft as part of the Enlarged Group;
· Completion is conditional upon, among other things, Shareholder approval of the resolution needed to complete the Acquisition and to authorise the directors to allot shares in connection with the Rights Issue and the Acquisition (the “Resolution”) and satisfaction of applicable antitrust and other regulatory approvals;
· The Combined Circular and Prospectus is expected to be published in October or early November 2020 with the proposed Rights Issue to follow soon thereafter;
· For the purposes of certain funds in connection with the Acquisition, AVEVA has entered into a fully committed facilities agreement with Barclays, BNP Paribas and J.P. Morgan, consisting of:
- A debt bridge to equity of $3.6 billion (the “Bridge Facilities”) which is not expected to be drawn and will be cancelled upon receipt of the net proceeds of the Rights Issue; and
- Fully committed term and revolving facilities which include a $900 million term loan facility with a maturity of 3 years (“Term Loan”) and a £250 million revolving credit facility with a maturity of a minimum of 3 years (“RCF”); and
· Schneider Electric, which currently holds approximately 60% of the issued Ordinary Shares of AVEVA, has irrevocably committed to vote in favour of the Acquisition and fully subscribe to the Rights Issue on a pro rata basis. This will deliver the necessary voting majority for the Resolution to pass.
2 The valuation of the Ordinary Shares of $611 million (£467 million) has been calculated by reference to the number of Ordinary Shares to be issued to Estudillo under the Stock and Unit Purchase Agreement, being 10.9 million Ordinary Shares, subject to customary adjustment for the Rights Issue, and the 5-day volume weighted average price of AVEVA’s share price up to the close of trading on 24 August 2020 (the last practicable date prior to publication of this announcement).
3 The proceeds of the Rights Issue of $3.5 billion to fund the Acquisition excludes amounts payable for transaction related fees and expenses.
AVEVA Current Trading
AVEVA continued to see similar trends in the first four months of FY 2021 to those that were outlined in its first quarter trading update for the three months to 30 June 2020. Strong growth in subscription revenue continued, while maintenance revenue was broadly flat and perpetual licences and services reduced substantially. This reduction was partly due to AVEVA’s ongoing transition to a subscription business model and partly due to disruption caused by Covid-19. Overall AVEVA Group organic constant currency revenue declined 3.7%.
Despite the Covid-19 related disruption, demand for AVEVA’s software has been robust, due to its ability to drive efficiency, flexibility and sustainability for customers across a wide range of industries, with particularly good demand for Cloud solutions.
As previously outlined, AVEVA faces a tough comparative period in the first half of FY 2021, particularly in Asia Pacific, partly due to the early renewal of a large contract in the prior financial year. The order pipeline for the remainder of the financial year is solid and is expected to benefit from large contract renewals in the second half of the financial year.
Expected Timetable to Completion
The Combined Circular and Prospectus containing further details on the Acquisition, the recommendation of AVEVA’s Board, the terms of the Rights Issue and the notice of the General Meeting is expected to be sent to Shareholders in October or early November 2020. Subject to satisfaction of the conditions to the Acquisition, Completion is expected to occur around the end of the year.
Commenting on the Acquisition, Philip Aiken, Chairman of AVEVA, said:
“I am delighted that we have reached agreement to acquire OSIsoft. The acquisition has compelling strategic rationale with strong operational and financial benefits. The acquisition will strengthen AVEVA’s position as a global leader in industrial software, whilst a combination of the complementary product offerings of AVEVA and OSIsoft is expected to allow the Enlarged Group to accelerate growth and continue to generate significant shareholder value.”
Commenting on the Acquisition, Craig Hayman, Chief Executive of AVEVA, said:
“The acquisition of OSIsoft is perfectly in line with our strategic vision and it will accelerate the Enlarged Group’s role in the digitisation of the industrial world, which is being driven by a need for sustainability, the industrial internet of things, Cloud, data visualisation and artificial intelligence. The acquisition will enable AVEVA to broaden and deepen its relationships with existing and new customers and bring a more comprehensive product portfolio to market.”
Commenting on the Acquisition, Peter Herweck, Vice Chairman of AVEVA and Executive Vice President, Industrial Automation, Schneider Electric, said:
“The combination of AVEVA and OSIsoft will accelerate our AVEVA partnership with significant customer value across process and hybrid automation industries plus the building and infrastructure sectors. AVEVA’s industrial software is a key element of Schneider Electric’s IoT-enabled architecture, EcoStruxure which will be further enhanced by OSIsoft’s PI System and its support for open infrastructure. Schneider Electric is committed to supporting customers with digital solutions for efficiency and sustainability.”
Commenting on the Acquisition, Dr. J. Patrick Kennedy, Founder and Chief Executive of OSIsoft, said:
“Joining forces with AVEVA enhances and extends our ability to deliver on our key commitments to our customers, partners and employees. Together we will be better able to service the largest digital transformation projects in history, including across industry 4.0+ and IIoT. The next chapter in PI’s fifth decade will be exciting for our employees and customers, and I look forward to my continued involvement as Chairman Emeritus and shareholder.”
AVEVA will hosting a briefing call for investors and analysts at 08:30 BST today. See below for dial in details or visit https://investors.aveva.com.