Emerson in $11b Merger of Industrial Software Businesses
The merging companies aim to create a "diversified, high-performance industrial software leader".
Emerson and AspenTech have entered into a definitive agreement to contribute Emerson’s industrial software businesses – OSI Inc. and the Geological Simulation Software business – to AspenTech to create a “diversified, high-performance industrial software leader with greater scale, capabilities and technologies (“new AspenTech”)”.
Emerson will also contribute $6.0 billion in cash to new AspenTech, which will be received by its shareholders, in exchange for a 55% stake in new AspenTech. It’s hoped that the new company, which will retain the name AspenTech, will help Emerson accelerate its software strategy to drive value creation.
“Today’s announcement marks an exciting new era. This transaction enables us to advance our position as a premier, highly diversified industrial software leader poised for significant growth, strong financial performance and a vehicle to drive future software acquisitions while providing immediate cash value to AspenTech shareholders”, said Antonio Pietri, President and Chief Executive Officer of AspenTech, who will lead new AspenTech.
“The new AspenTech will benefit from a larger and more diversified market, which we will be able to serve with a comprehensive software portfolio, an expanded global sales channel and an even stronger balance sheet reinforced by Emerson. Additionally, this transaction expands our ability to support customers’ global sustainability ambitions”.
The new AspenTech will provide differentiated offerings in Industrial AI and asset optimization with Emerson’s grid modernization technology, advanced distribution management systems and geological simulation software. With the additional capabilities of OSI Inc. and Geological Simulation Software, new AspenTech will expand into new, high growth markets. AspenTech recently announced a commitment to invest $35 million in life sciences and metals and mining that will help accelerate adoption of new AspenTech’s solutions.
The companies believe the addition of OSI Inc. will enable new AspenTech to develop its transmission and distribution offering to support power grid modernization and ensure grid reliability. This expanded software capability will build on Emerson’s global life sciences expertise comprised of 3,000 installed control systems, 30 locations and nearly 1,000 project engineering and consulting employees dedicated to active life sciences projects.
The companies also expect new AspenTech to drive revenue and synergy opportunities by transitioning OSI Inc. and the Geological Simulation Software business to a token and subscription-based business model, which AspenTech has achieved for its existing portfolio. The token model allows customers to access a suite of software modules.
New AspenTech further expects to deliver “multiple, specific revenue growth opportunities” by leveraging Emerson’s $120 billion global installed base and its sales force of nearly 12,000 salespeople. The companies will share R&D and SG&A organizations, overhead and spend optimization. New AspenTech expects to achieve $110 million of total EBITDA synergies by year five, of which $40 million are from cost savings. Emerson also expects to benefit from the enhanced commercial alliance with new AspenTech, driving $45 million of EBITDA synergies.
“We saw an attractive opportunity to accelerate our software strategy to capitalize on the rapidly evolving industrial software landscape and advance Emerson’s high-value portfolio journey”, said Lal Karsanbhai, President and Chief Executive Officer of Emerson. “Our customers are increasingly seeking partners to help realize stronger performance as they automate workflows in their facilities to optimize operations. New AspenTech will become an engine for both acquisition and organic growth”.
New AspenTech will be headquartered in Bedford, Massachusetts and Antonio Pietri, the current CEO of AspenTech, will be the CEO. Following the close of the transaction, the Board of Directors of new AspenTech will consist of nine directors, five of whom will be designated by Emerson. Jill Smith, the current Chair of the Board of Directors AspenTech, will serve as Chair of the Board of Directors of new AspenTech.
The transaction has been approved unanimously by Emerson’s Board of Directors, and by unanimous vote of those AspenTech directors. The transaction is expected to close in the second calendar quarter of 2022 and is subject to approval by AspenTech shareholders, regulatory approvals and other customary closing conditions. Upon completion of the transaction, new AspenTech will trade on NASDAQ under ticker symbol AZPN.
Following the completion of the transaction, new AspenTech will have a global footprint with more than 3,700 employees. On a pro forma basis, new AspenTech is expected to have FY22 annual revenues of $1.1 billion, adjusted EBITDA of approximately $490 million and achieve double-digit annual spend growth through 2026. New AspenTech will have high growth, a predictable business model with 86% of pro forma revenues from software and 14% of revenues from services.
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