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

“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

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

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.

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