RealTime IT News

EDS $2B Divestiture Buoys Design Software Cos.

While the sale of EDS' product lifecycle management (PLM) software unit is an obvious boon for the Plano, Texas, company, experts say it also bodes well for the PLM industry.

EDS on Sunday agreed to sell UGS PLM Solutions to three buyout firms for $2.05 billion, the largest private equity investment ever made in a technology company.

The divestiture itself was no shock. In October, EDS announced it would sell or spin off the business to slash debt and hone its focus on IT outsourcing. However, the specifics of the deal suggest an upswing for the broader market.

"The price, which is 2.3 times revenue, was a surprise," META Group analyst Bruce Hudson told internetnews.com. "It's a vote of confidence for PLM."

Michael Burkett, an analyst at AMR Research, agreed. He also highlighted the experience of the winning consortium -- Bain Capital, Silver Lake Partners and Warburg Pincus.

The three "have a reputation for due diligence, indicating a stronger endorsement of PLM growth than received from public investors," Burkett wrote in a research report.

Finally, there was the fact that the successful bidders were not alone. Another team of investors also made an offer, a source close to the deal said.

A number of firms compete with UGS PLM Solutions in the PLM space, including: Dassault Systems, PTC, MatrixOne and Agile Software.

PLM includes computer-aided design applications that enable engineers and architects draft plans. The software provides views from any angle and to zoom in or out.

In addition, programs track of design dependencies, so when the engineer changes one value, all other values that depend on it are automatically changed accordingly. In recent years, vendors have been adding more collaboration and data sharing tools.

The applications are most widely used in the transportation industry. They have been successful in that field, but also constrained. Still, CIMdata analysts expect to grow by a compound annual growth rate of 8 percent through 2008 to more than $14.5 billion.

META Group's Hudson thinks new ownership will help UGS PLM Solutions extend its reach. Silver Lake currently has shares in contract manufacturer Flextronics and hard disk drive maker Seagate.

"[Silver Lake] will be able to define the market message very clearly and help UGS to start working on new partnerships that they'll need if they want to go beyond cars, planes and autos," Hudson said.

Bain Capital is not without tech experience either, tallying 75 investments in software and technology companies, including Ameritrade and Integrated Circuit Systems.

Andrew Balson, a managing director at Bain Capital, said UGS PLM Solutions has "outstanding growth potential." "Under our ownership, UGS PLM Solutions will continue to invest to develop its market leading product data management software," he said.

One factor in how quickly it can grow is whether new products catch on. UGS PLM Solutions has been expanding its Teamcenter PLM product to tie in other groups besides engineers, AMR's Burkett said. A recent customer win with consumer product giant Procter & Gamble is encouraging.

Still Teamcenter is a "work in progress," because it cobbles together applications from several acquisitions, he said. The new buyers will be carefully evaluating where UGS PLM solutions should focus for the greatest growth," Burkett said.