Siemens is approaching its annual press conference, and this time the focus will not only be on the financial results. The company has just announced the 10 billion dollar acquisition of the US software company Altair Engineering.

CEO Roland Busch will be discussing this project. However, he may not need to say much. Investors have already spoken, and their verdict is positive. The stock price, which the investor relations department has not shown on its website for many months, is nearly at the same level as it was in October when the acquisition plans leaked. In contrast, the Dax has fallen. On November 7, Siemens’ stock closed just below its all-time high from May of this year.

The market's warm reception of the ten billion-dollar acquisition is surprising, as the M&A numbers send a clear signal: The deal is very expensive. Once the deal is completed, there will be little noticeable change in revenues. The additional 600 million dollars is not very significant for a company with 82 billion euros in revenues,.

The deal meets the company's M&A criteria, but the multiples being paid are staggering. The projected synergies on the cost side are notably high. The company includes these synergies in its self-calculated multiples.

It can be calculated that Siemens is paying 95 times the expected Altair profit for 2024. Additionally, the goodwill will be enormous, as is typical in the acquisition of software companies. The increase in intangible assets will likely significantly burden the return on invested capital.

That said, the market’s signals suggest the strategy is what matters, and that is widely regarded as sound. Siemens is strengthening its core business in factory automation, which is part of its Digital Industries division. Altair is strong in automotive, defense, and finance sectors. Siemens will be able to expand its manufacturing simulation approach into more industries through Altair, driving software revenue growth much faster than would have been possible organically. From this perspective, 600 million dollars in revenue is a notable amount, especially as Siemens currently generates only around 8 billion euros from software. Moreover, the tools can be scaled through Siemens’ global network. The Americans also bring AI expertise, with 15% of their business already coming from this area. It is still not fully understood how much this technology will revolutionise manufacturing planning. In the future, simulation will not only be done by specialists.

Siemens has significant experience in integrating software companies, so the integration of Altair should be successful. However, there are some special considerations. Altair has grown through numerous acquisitions. When a company expands this rapidly through M&A, it often invests too little time in creating a coherent whole. This is particularly risky in the software world, which is highly dependent on the expertise of its employees.

The Altair deal also brings a strategic shift. To finance the acquisition, Siemens plans to sell a small portion of its Healthineers shares. This is a signal of change, even though the majority of the shares will remain with Siemens for the time being.

The acquisition is a bold move. Such large-scale acquisitions will remain the exception for Siemens, especially in the highly valued software sector. Equally important is driving organic digital revenue growth, ideally at an even faster pace than before.