Wow, I found this interesting. I guess all those miniature artists that build scale models will no longer be needed. My old friend Olimpio DeMarco is in charge of AEC business development there. Knowing Olimpio’s skills, in no time this will be the industry standard methodology for AEC projects. Just one more reason for the AEC 2Ders to move to 3D.
In today’s letter to customers, MSC management announced that the Board had approved a merger with an affiliate of Symphony Technology Group. But the company provided no information as to why this might be a good deal for stockholders, other than stating that “It is Symphony’s mission to partner in helping to build great companies and in enabling growth through innovation.” Isn’t that what MSC management is paid to do? Does Symphony have some knowledge about simulation software? Does Symphony have some knowledge about the engineering analysis marketplace? What are the specifics of how Symphony will improve the company operations? In fact, MSC goes on to say that “We plan no changes to our current product direction or deliverables.” Weird, eh? Further, what does “This new ownership structure will streamline certain business processes that historically constrained MSC.” How is that for obfuscation? Why cannot MSC change their own business practices? After all, the old management left only a few months ago. What a perfect opportunity to change anything amiss.
After looking at some of the financials, we came to the conclusion that this appears to be a great deal for Symphony, and a crappy deal for the stockholders since that will have no way to participate in any upside potential for MSC Software.
While I do not claim to be a sophisticated financial analyst, here are some glaring items about the planned acquisition:
• With 45.2 million shares outstanding, the offer of $7.63 per share yields a net price of $344 million, only 1.35 times gross revenue, an extremely low price for a high tech company with a large recurring revenue.
• At year end 2008, the company had net revenue of $206 million, much of this recurring revenue. Recurring revenue requires less sales and admin overhead than new revenue.
• Yet their ratio of Selling and G&A Expense to R&D was almost 3:1. Compare this to PTC’s 2 to 1, Autodesk’s 2 to 1, Ansys 1.9 to 1 and Dassault Systemes 1.5 to 1. Taking these bloated expenses down could immediately result in an extra $50 million direct to the bottom line!
• On top of this, again at year end 2008, MSC’s current assets exceeded current liabilities by just over $100 million, with virtually no long term debt. This cash is immediately available.
• In spite of spending more than $50 million per year on research and development, MSC has a reputation for being a non-innovator in the industry.
With the cash and improved expenses, in two or three years, Symphony could have all of their investment returned! This appears to be a massive bargain for them. Clearly the company needs to be reworked, but why not manage it instead of selling it? And why give it away?
Disclaimer: None needed – Ray has no financial interest in MSC Software.
In the last week or so, ITI TranscenData announced that it had acquired Proficiency, one of the early entries into the “art” of translating feature based models between CAD systems. I was particularly interested in this announcement because I recalled that Proficiency was the beneficiary of a large venture capital investment. I recalled at least one paper claiming that the CAD migration market was in the billions of dollars. Longview Advisor President David Prawel said, “[their] study showed the CAD migration market of software and services is about $5.7 billion this year .”
To explore what had transpired, earlier today I spoke with Don Hemmelgarn, ITI TranscenData’s president.
Apparently, Proficiency, with a capital investment in excess of $40 million was unable to gain enough market share or revenue to satisfy its investors, who refused to invest more in the company. Hemmelgarn expects Proficiency to add about 20% of ITI TranscenData’s expected revenue of $15 million in the next fiscal year, or about $3 million in revenue, a mere pittance in a $5 billion plus market.
Hemmelgarn is excited about bringing the Proficiency technology into his company, thus adding feature based translation and a 450 man-year investment to their technology. ITI TranscenData specializes in working with large OEM’s with a continuing need for data exchange between unlike systems, counting among their clients the major automotive and aerospace companies. Most important for this clientele is the ability to automate translations and to verify that the translation was successful and accurate. ITI TranscenData software seems to do just that and the company seems to be on a steady upward path in terms of revenue, with year over year growth in the last five years, better than many CAD software companies can claim.
SmarTeam, a PDM system that originated and was developed in Israel in the mid to late 90’s, was specially configured as an add-on PDM solution for SolidWorks, which at the time had only a limited PDM capability.
In about 1999, Dassault Systemes acquired a 75 percent interest in Smart Solutions, the Israeli company that developed and marketed SmarTeam. Dave Weisberg in his book entitled The Engineering Design Revolution noted that “This package was particularly well suited to users of SolidWorks although the two Dassault subsidiaries operated independently of each other. The SolidWorks version of SmarTeam was called SmartWorks.”
With the interest in and the growth in PDM (PLM), SmarTeam over the years migrated from an independent company with its own sales force, to one falling under the sales umbrella of SolidWorks, to a multi-CAD software organization, and finally, with DS’s multifarious PLM offerings, has now been submerged into Enovia.
From recent press announcements we infer that most development within Israel for the newest versions of SmarTeam has been eliminated. V6 development (the new technology) moved out of Israel to Paris and Boston. Israel continues V5 ENOVIA SmarTeam (the old version) development.
The ENOVIA SMB version, of which SmarTeam is a part, is called ENOVIA Express in V6 R2010, the most recent announcement.
Alas, SmarTeam suffered the fate of so many products. It became so popular that it became bloated trying to support higher and higher end accounts. Its simplicity was lost, and over time its technology became outdated.