Schneider Electric’s Industrial Software Business and AVEVA Combine to Create a Leading Global Provider of Engineering and Industrial Software

By Craig Resnick

Category:
Acquisition or Partnership

Schneider Electric announced that its Board of directors and AVEVA Group plc Board have reached agreement on the terms and conditions of a combination of AVEVA and Schneider Electric industrial software business to create a leading global provider of engineering and industrial software.

This transaction will, among other things:

  • Help to enhance the value proposition of Schneider Electric’s Industrial IOT platform (EcoStruxure) for industrial & infrastructure customers;

  • Help to unlock additional value at the Enlarged AVEVA Group and Schneider Electric through the potential for revenue and cost synergies, leveraging complementary end-markets and geographical exposures, customers and product portfolios. Schneider Electric and AVEVA will enter into a series of operational agreements in order to optimize the generation of synergies for the benefit of both parties;

  • Result in Schneider Electric contributing its Industrial Software Business at an Adjusted EV/EBITA FY17 multiple of c.19x1, broadly in line with AVEVA’s multiple; and

  • Upon completion, the new company, with an accretive margin, is expected to be fully consolidated in Schneider Electric accounts within the Industry division.

     

Certain developments at the Schneider Electric Software Business over the course of 2016 and 2017 have also helped to reinforce the strategic rationale of the Combination, including:

  • The Schneider Electric Software Business’ legal reorganization now being substantially complete, such that the Schneider Electric Software Business will comprise a stand-alone business unit sitting within a set of separate legal entities within Schneider Electric

  • The addition of the oil and gas pipeline management solutions division of Telvent, a company that Schneider Electric acquired in 2011, to the Schneider Electric Software Business, creating a set of assets with a strong market position that is complementary to the combined portfolios of the Schneider Electric Software Business and AVEVA, thus helping to enhance the scale of the Schneider Electric Software Business as well as the overall strategic rationale of the Combination.

     

Key terms of the Transaction

The key terms of the combination include:

  • The combination of AVEVA and the Schneider Electric Software Business;

  • On completion, following the issue of ordinary shares in the capital of AVEVA to Schneider Electric, Schneider Electric will own 60 percent of the Enlarged AVEVA Group on a fully diluted basis while existing AVEVA shareholders and participants in the AVEVA share plans will retain 40 percent equity ownership on a fully diluted basis.

  • The value of the consideration shares to be issued to Schneider Electric is approximately £1.7 billion based on the AVEVA Group closing share price at the Latest Practicable Date. This represents an EV FY17 Adjusted EBITA multiple of approximately 19x for the Schneider Electric Software Business, broadly in line with AVEVA’s multiple;

  • Shareholders should have an opportunity to benefit (through their shareholding in the Enlarged AVEVA Group) from the larger market scale and reach of the Enlarged AVEVA Group together with the revenue and cost synergies, which are expected to arise over the medium term;

  • Schneider Electric will pay to AVEVA £550 million in cash (approximately 858 pence per Ordinary Share) which, taken together with its contribution of the Schneider Electric Software Business, will mean that Schneider Electric will hold a majority of the Enlarged AVEVA Share Capital. Such cash will be distributed to AVEVA shareholders (excluding Schneider Electric) at or around completion; and

  • AVEVA will also distribute £100 million (approximately 156 pence per Ordinary Share) in cash to shareholders (excluding Schneider Electric) at or around completion, such amount representing a significant proportion of the excess cash held on AVEVA’s balance sheet after allowing for transaction costs and a prudent view of AVEVA’s working capital requirements.

     

Completion, which is expected to be at or around the end of 2017, is subject to the satisfaction of a number of conditions including, amongst other things, applicable regulatory and anti-trust approvals having been obtained, AVEVA shareholder approval of the Combination, and re-admission of the Enlarged AVEVA Group.

Keywords: Engineering, Industrial Software, Infrastructure, ARC Advisory Group.

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