New Industrial Software Giant Emerges With Emerson's Acquisition Of AspenTech In $11bn Deal
On October 11, 2021, industrial automation giant Emerson announced that it was acquiring a controlling interest in industrial software provider Aspen Technology (“AspenTech”), with the transaction expected to close in the second calendar quarter of 2022. The newly formed software-focused business (“new AspenTech”) will include two industrial software businesses from Emerson – OSI Inc. (acquisition completed in October 2020 for $1.6 billion) and Geological Simulation Software. Emerson will also contribute $6 billion in cash to AspenTech shareholders for a 55% stake in the new software business with a pro forma annual revenue of $1.1 billion. The deal terms resemble those from the Schneider Electric and AVEVA merger from 2017.
Apart from its strong financial profile, New AspenTech will be leveraging significant business model synergy opportunities by moving OSI and Geological Simulation Software to token software license models to expand recurring sales (major trend amongst industrial software vendors), while capturing scale efficiencies by leveraging joint R&D and Selling, General & Administrative (SG&A) organizations. Emerson and AspenTech have both been executing aggressive inorganic growth tactics, and following the acquisition, both will have increased access to capital for fuelling product development and industrial expansion strategies.
New AspenTech will accelerate Emerson as well as Aspentech’s software strategies, providing customers and prospects across process (O&G, chemicals, life sciences, F&B), mining and utilities industries a highly competitive offering across the asset’s lifecycle. AspenTech’s performance engineering products paired with Emerson’s Geological Simulation Software will provide an end-to-end dynamic modelling suite from design to production optimization for process industries, while a combined OSI and AspenTech portfolio will offer a significant upgrade to AspenTech’s already leading operations and asset performance management capabilities, especially for power T&D. AspenTech’s portfolio also has most component parts to help industrial firms implement a digital twin and, if it plays its (R&D and M&A) cards right, it will be in a unique position to establish a leading position in the nascent but fast-growing multi-billion industrial digital twin market.
Both customers and stakeholders should feel relief in seeing that the deal’s strategy is also aligned with sustainability needs in the current and new energy transition markets, as New AspenTech’s vision is focused on reducing emissions, modernizing the electrical grid for resiliency and efficiency, enabling carbon capture projects through simulation-driven engineering, and accelerating a circular economy by improving material efficiencies – all four being core or strategic investment priorities of senior executives responsible for ESG and sustainability.
In an increasingly consolidating industrial software market, we anticipate the M&A boom to continue through 2022, as the winners will be those that can offer customers a comprehensive and one-stop-shop toolbox that can meet all safety, reliability, production and sustainability needs.