How shrewd is Jim Heppelmann? He has sold a minority stake of PTC—about 9%—to Rockwell for a billion dollars. By contrast, Tony Affuso, CEO of UGS, makers of NX and Teamcenter, had to give up his entire company—100 percent—to Siemens for $3.5 billion in 2007. In other words, while Affuso got about 3 times the revenue for UGS, Heppelmann got almost 10X the revenue for PTC per equity dollar.
But after the Rockwell deal, PTC is still Heppelmann’s to run.
“At around nine percent ownership, Rockwell does not control PTC, nor [does it] have the ability to block or force any strategic moves that PTC might consider down the road,” Heppelmann stated in an article in engineering.com.
Why is Heppelmann smiling? CEO of PTC, Jim Heppleman (right) on stage at PTC’s LiveWorx recently concluded in Boston, announcing a sweet deal for PTC. He got a billion dollars from Rockwell, while retaining almost total control of his company. (Image courtesy of engineering.com.)
Shares of PTC shot up 10 percent after the announcement as investors saw a definite value in the partnership with Rockwell. Rockwell shares, if they moved at all, went down a bit.
It used to be that industrial companies sought to rid themselves of their homegrown CAD software. Dassault Systèmes spun out to Dassault Aviation. McDonnell Douglas spun off Unigraphics (UGS). Now that UGS was acquired by Siemens and Rockwell bought a stake in PTC, are we to believe that the pendulum swings the other way, that CAD companies are all to go back to being part of industrial businesses?
Rockwell is a Fortune 500 company, with annual sales of $6.3 billion. As big as that sounds, Siemens AG is far bigger, an order of magnitude bigger, annual sales of almost a $100 billion.
Rockwell will buy the 9% equity with a $1 billion in cash. PTC will use the cash to buy back stock, preventing dilution for existing stockholders. The deal is subject to regulatory approval. .
In many ways, the Rockwell deal validates PTC's path toward emerging technologies. Historically, PTC has been seen by CAD insiders as chasing business far from their core competency (CAD). First there was PLM (Windchill), then Mathcad , desktop publishing, more... CAD was never enough for PTC, it seemed. The latest of “Heppelmann’s latest new, shiny objects,” as one analyst put it, were augmented reality(AR) and Internet-of-Things (IoT). PTCs announcements of acquisitions in AR an IoT sent some of us Googling what those terms meant—and questioning the merits of one deal after another.
Heppelmann didn’t need us to validate his visions. Not with companies like Rockwell willing to buy a stake in the technologies PTC was able to establish leadership in. The Rockwell money is redemption for the PTC leader. Heppelmann inherited a company that was a tired, old, two-trick pony. One trick was the venerable Pro/ENGINEER, reincarnated as Creo. It had little hope of regaining its number one spot solidly (pun intended) by SolidWorks. The second trick was Windchill, a PLM product whose biggest benefit may have been the incorporation of Jim Heppelmann, Windchill’s founder, into the PTC fold.
Rockwell Inevitable only in Retrospect
Everyone was caught flatfooted by the Rockwell deal. There was smart money on GE buying PTC. After all, both companies were singing an IoT tune. GE was like Siemens AG in the United States and represented a too-easy parallel to the Siemens/UGS acquisition. But GE has been busy imploding. From the height of Jack Welch leadership, it had seen its global empire crumble, divisions sold off and its share price become a shadow of its former self and all followed by talk of going back to its core businesses. It was certainly not a climate for expanding into CAD and PLM.
Rockwell, much smaller than GE at its prime, may have been far down the list in terms of acquisition or investment but seems like they were hungering for exactly what PTC was cooking. Rockwell paid almost 9% more than PTC stock was selling for.