High price, but the right strategy
A software acquisition has been at the top of the Siemens Executive Board's agenda for some time. But the opportunities to buy have come and gone, and competitors have always pounced. The Munich based company lost out – or did not want to pay the prices being asked. Now everything is different. Siemens has a good opportunity to strengten its position in the industrial automation sector with Altair Engineering, for which it has agreed to pay 10 billion dollars.
The cost synergies are set astonishingly high, and the multiples can make your head spin. In the case of Altair, 14 times next year's expected sales revenues. The multiple on the adjusted EBITDA result is 31, and this already includes the short-term cost synergies. The capital markets world seems to have become accustomed to valuations that previously seemed fanciful. The share price hardly reacts. Anything goes. In boom times, strategy is what counts, and in the software world this is certainly true.
And there can be no doubt on this point – the strategy is right. Firstly, the acquisition strengthens the Digital Industries division in the USA, where it has been underrepresented to date. Secondly, the product and customer range of Siemens and Altair is more complementary than one might expect in this field.
Integration is manageable
As is always the case with mega-acquisitions, strategic fit is only one side of the coin. Integration is also crucial to success. Siemens should get this under control. Despite the high purchase price, Altair is not huge; 3,500 people work for the company. Above all, however, Siemens has excellent integration expertise. Over the past 17 years, the Group has invested around 23 billion euros in software companies, and most of the acquisitions have been a success.
Altair is a gain for Siemens, even though this acquisition must first prove that it also pays off financially. One thing is clear, however: Simulation tools are at the beginning of a triumphal march. They will soon be used in many different industries far beyond the traditional automotive and aviation sectors. Demand is likely to rise sharply, especially as artificial intelligence simplifies the use of the tools. Those who are fast and competent will succeed in this market.
