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Aveva’s $5 Billion Deal Is First of Many as Factories Go Digital

Katharine Gemmell and Amy Thomson
·2-min read

(Bloomberg) -- Aveva Group Plc’s $5 billion acquisition of SoftBank Group Corp.-backed OSIsoft last week will make the little-known software company one of the U.K.’s largest publicly traded tech companies. It may also make it a target.Aveva, based in Cambridge, England, makes software for industrial firms and specializes in tech that can take data from sensors in factories to predict malfunctions and find ways to improve output. As manufacturers have been pushed to upgrade technology to deal with more remote working and monitoring during the coronavirus lockdowns, that niche has fuelled growth.

Chief Financial Officer James Kidd said that he wants Aveva to continue to expand through deals, scooping up more of the small tech companies that have blossomed around this industry in recent years and incorporating them into an increasingly global enterprise.

Kidd and his colleagues already have experience with dealmaking: Aveva merged with French industrial giant Schneider Electric SE’s software business in 2018 in a transaction that left Schneider as its majority shareholder.

“We learned a lot through the Schneider-Aveva merger,” Kidd said in an interview. “It’s a playbook we could use again first and foremost. The sector is obviously consolidating and we want to play a major part in that.”

With a gross margin that beat Microsoft Corp.’s last fiscal year, according to data compiled by Bloomberg, and subscription revenue that grew 30% in the quarter ending in June, the company’s success could draw the attention of bigger rivals. The total addressable market for all types of industrial software makers is expected to grow more than 30% to over $56 billion by 2024 as more factories deploy digital tools, according to research from the ARC Advisory Group.

“It was in most companies’ three-to-five-year plan, then once the pandemic came, it really accelerated,” said Craig Resnick, vice president of consulting at ARC Advisory. “It’s really difficult to operate these plants remotely without having all the right tools -- not only to be able to monitor and visualize and control what goes on in the plant floor, but also to create digital models of some of the assets on the factory floor.”

Aveva is in a sweet spot having software development expertise and an intimate knowledge of the needs of industrial companies, Chief Executive Officer Craig Hayman said. Companies that don’t have both sets of skills find making this type of product much more difficult.

“It’s a little harder for some of the bigger software companies to do this,” said Julian Serafini, an analyst at Jefferies Financial Group Inc. “It doesn’t mean they won’t try, but Aveva is well-positioned from this angle of specialization.”

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