Dassault Bulks Up Through an Old Friend

Includes: DASTY, IBM
by: 451 Research: Inorganic Growth

By Brenon Daly

Dassault Systèmes’ (OTCPK:DASTY) $600m purchase of IBM’s CATIA product lifecycle management (PLM) sales and client support operations on Tuesday is the latest twist in a complex, 30-year relationship between the two companies. Dassault, founded in 1981, inherited the rights to CATIA, one of the first 3-D computer-aided design (CAD) packages, from its aerospace parent Avions Marcel Dassault (now Dassault Aviation). Then in 1992, Dassault bought the rights to the other pioneering CAD package, CADAM, from IBM. It set about combining the two, and continued to jointly market the product set with Big Blue.

Now it seems that Dassault wants more control over its business. Through the deal, which is expected to close during the first half of next year, it gains access to 1,000 more clients and around $700m in annual sales. The transaction is expected to boost earnings in the first year.

The partnership will continue with IBM in the services role, but should enable Dassault to simplify its contracts with very large customers such as Ford Motor (NYSE:F) and Boeing (NYSE:BA), which until now had to negotiate with both vendors. The scope of CAD software has evolved over the years from core engineering and complex product design into collaborative PLM focused on business processes, workflows and the supply chain. However, Big Blue didn’t have the agreements in place to sell the full set of Dassault tools. The result was that more big firms were dealing directly with Dassault. A side effect is that both companies will be more able to work with other partners: Dassault with Hewlett-Packard (NYSE:HPQ), for instance, and IBM with other PLM providers such as Siemens (SI) PLM Software and PTC.

The deal is the biggest in Dassault’s history, though it has spent heavily in the past on industry consolidation, most notably through the acquisitions of MatrixOne (March 2006, $408m), ABAQUS (May 2005, $413m) and SolidWorks (June 1997, $310m). Other vendors have also been buying up big chunks of the PLM market. Siemens inked the sector’s largest deal in January 2007, spending $3.5bn on UGS, while Oracle handed over $495m for Agile Software in May 2007. The PLM shop that appears to be left behind is PTC, which despite spending more than $600m on 11 purchases of its own since 2004 is now much smaller than either Siemens or Dassault and is under pressure from moves into PLM by mainstream enterprise software houses such as Oracle and SAP. Several market sources indicated that PTC has retained Goldman Sachs (NYSE:GS) to advise it on a possible sale.