RealTime IT News

EDS Eyes Product Lifecycle Market

Electronic Data Systems (EDS) Wednesday moved to extend its reach into the product lifecycle management (PLM) software arena and improve its positioning in the supply chain arena through deals to acquire Structural Dynamics Research Corp. and its publicly-held subsidiary, Unigraphics Solutions (UGS).

EDS will shell out about $950 million in cash, about $25 a share, for SDRC, and plans to offer to buy the 14 percent of UGS that is publicly held for $27 a share, about $170 million.

The two companies would be folded together under the UGS name and become a fifth line of business for EDS. The company projected that the new UGS would be a leader in digitalized PLM, with more than $1 billion in annual revenues.

"In the last 24 months, we have seen the beginning of a network-based revolution in the way products are designed, developed and manufactured," said Dick Brown, chairman and chief executive officer of EDS. "UGS has given us a window on this change and on the emergence of product lifecycle management, where digitized information is shared instantly and globally. Now is the time to move quickly and decisively to capture opportunities in this space."

In addition to opening up a new market for EDS, the acquisitions would also bring the company 7,000 clients, 85 percent of them new to the company. Many of those clients are in the automotive and aerospace industries -- including Ford, Mazda, Honeywell and Nissan -- and will create opportunities for cross-selling consulting, systems integration and outsourcing services.

Analysts were initially skeptical about the deal, but Goldman Sachs & Co.'s Gregory Gould said the acquisitions make sense after a second look.

"The strategy behind yesterday's announcement wasn't initially apparent given EDS' primary focus on outsourcing, BPO, and consulting/systems integration," Gould said. "Moreover, we were concerned with SDRC's spotty historical track record and the normal challenges services companies face in the software market. Upon further analysis, however, the strategic rationale does appear sound because it enhances EDS' expertise in an important area. Although SDRC's core CAD/CAM product isn't regarded as competitive, over the past few years the company's growth engine has shifted toward collaborative software and digitized product lifecycle management software. SDRC's main application -- Metaphase -- was recently revamped and is viewed as highly competitive. Metaphase complements UGS' software solution and in general positions EDS to participate in a new market estimated at $18 billion in annual revenue."

And Gould noted that EDS can easily shore up SDRC's distribution, which he said has been its weakest link. EDS brings a strong salesforce, strong consulting/systems integration skills, and a focus on the manufacturing sector to the table. Meanwhile SDRC's collaborative and PLM software will enhance EDS' positioning in the supply chain arena.

EDS anticipates closing both transactions around the end of the third quarter, though it must still jump through U.S. and foreign regulatory hoops. The company also warned that the acquisitions will likely be dilutive in fourth quarter 2001 and for 2002. It also expects to take a "modest" one-time charge for purchased in-process research and development in the quarter when the SDRC acquisition closes.