Friday, September 19, 2008

PTC’s potential sale could stir up CAD space

By Christopher Calnan

News that Parametric Technology Corp. may be seeking a buyer has generated more buzz than the news that it may end its fiscal year with a billion-dollar top line for the first time in a decade.

But what impact, if any, its potential sale might have on PTC and its people is still up in the air — and the company itself isn’t talking.

If fellow CAD software maker SolidWorks Corp. is any indication, an acquisition may not be a bad thing for the local economy.

In 1997, SolidWorks, which was founded in 1993, was acquired by Dassault Systemes SA in a stock deal worth $310 million. SolidWorks revenue has grown from $28 million in 1997 to $350 million last year, company officials said. It employed 115 people before the acquisition and now employs 620 — more than half of them based locally.

Such growth is mostly due to Dassault, in large part, allowing SolidWorks to operate independently, said Axel Bichara, a partner at Atlas Venture, one of the early venture capital investors in SolidWorks.
“It was a textbook example of an acquisition that worked well,” Bichara said. “It’s really a huge success story.”

But acquisitions by larger corporations can also have disruptive consequences, spurring talented workers to jump ship in an effort to control their own destiny, Bichara said. “This may be the trigger point” for an exodus of talent from PTC, if the company isn’t careful, he said.

The report that Needham-based PTC (Nasdaq: PMTC) hopes to sell itself for more than $2 billion, published in the Financial Times citing unidentified sources, follows years of consolidation in the computer-aided design (CAD) industry.

PTC, founded in 1985, is one of New England’s leading tech companies, with nearly 4,900 employees and a $2.2 billion market capitalization.

During 2007, the company reported a profit of $143.6 million on revenue of $941.2 million. PTC officials plan to announce fourth-quarter earnings and the $1 billion annual sales milestone on Oct. 28.

Soliciting acquirers could be an effort by PTC to capitalize on a revenue bump combined with a major customer win, industry observers say. In July, PTC signed a contract to provide product life cycle management software to European Aeronautic and Defense Space Co. (EADS), the parent company of Airbus. PTC won the contract after a yearlong competition with industry rivals Siemens AG, Dassault Systemes and SAP AG.

PTC called the EADS deal one of the biggest in its history, though it didn’t say what it was worth.

Cadence, ANSYS suitors
No single CAD developer has emerged as a consensus favorite PTC acquirer. The industry’s Big Three — France-based Dassault, California-based AutoDesk Inc. and Germany-based Siemens — have already completed acquisitions and carry their own parametric-modeling products. But Cadence Design Systems Inc., a California company that develops CAD for electronics, and Pennsylvania-based ANSYS Inc., are also considered as potential acquirers.

Cadence would be a “highly probable” suitor because PTC’s mechanical CAD solutions would complement Cadence’s electronic design automation (EDA) software that’s used for semiconductors and circuit boards, said Michael Burkett, vice president of AMR Research in Boston.

Cadence, which generated $1.6 billion in revenue last year, has been recently acquiring companies, including Chip Estimate Corp., a California-based developer of planning and management software.

ANSYS, which develops simulation software, posted $385.3 million in revenue during fiscal 2007. In July, it completed an acquisition of Ansoft Corp., a Pittsburgh-based EDA software maker. Fred Joseph, a partner at investment bank America’s Growth Capital in Boston, called Ansoft the “wild card” in the list of prospective PTC acquirers.

An acquisition of PTC solely for its technology wouldn’t make sense. But acquirers such as Dassault Systemes may consider such a deal to gain access to PTC’s smaller-sized customers, said Ray Kurland, president of TechiCom Inc., a Rockaway, N.J.-based consulting firm specializing in the CAD industry.