(Bloomberg) -- Siemens AG has agreed to buy software maker Altair Engineering Inc. for an enterprise value of $10 billion, furthering the German engineering giant’s migration to higher margin, software-driven product lines.
In its largest-ever acquisition, Siemens will pay Altair investors $113 a share, according to a statement. The transaction, expected to close in the second half of next year, represents a 19% premium to Altair’s Oct. 21 closing price, the last trading day prior to reports regarding a possible acquisition.
The equity value of the Siemens deal is $10.6 billion, according to the statement, which confirmed an earlier report by Bloomberg News that the companies were nearing a deal. Shares of Troy, Michigan-based Altair closed at $108.63 apiece on Wednesday, giving the company a market value of about $9.3 billion.
Led by founder and Chief Executive Officer James Scapa, Altair provides engineering software to companies in the aerospace, automotive, energy and financial services industries. Demand for such tools is expected to grow with the increased adoption of artificial intelligence in everyday life.
Altair fell about 4% after the close of regular trading, which had been halted earlier. Siemens shares declined as much as 1.9% in Frankfurt. The stock is still up more than 4% this year.
In a separate deal, Siemens announced Thursday that it will sell its Airport Logistics Unit to Toyota Industries Corporation’s Vanderlande for €300 million ($326 million).
“Altair is a high-quality asset that makes good strategic sense,” RBC analyst Mark Fielding said in a note, adding that selling the airport logistics unit supports Siemens’s push to become leaner.
What Bloomberg Intelligence says:
Siemens $10 billion acquisition of Altair Engineering adds 8% to its 2023 digital business and appears to be a sensible fit with its Xcelerator software to create an industrial-simulation titan.
- Omid Vaziri, BI Industrials analyst
Siemens Shift
Under CEO Roland Busch, Siemens has been exiting heavy equipment businesses and shifting its focus to software to catch up to the profitability of automation peers like Rockwell Automation Inc. and Schneider Electric SE.
Siemens flagged last November that it could pursue larger acquisitions with a focus on software. In August, Busch said in a Bloomberg TV interview that Siemens was looking for software companies or connected hardware manufacturers whose data can be used in cloud services.
The CEO called the Altair transaction a logical next step. It’s rare to find an asset in the highly consolidated realm of industrial software that’s complementary without raising antitrust issues, Busch said Wednesday in an interview.
“It’s like finding a diamond somewhere,” he said. “It fits perfectly in the areas where we want to invest and grow faster.”
Siemens has expertise in manufacturing design processes but lacks the range of simulation technology that Altair offers. For example, while Siemens already sells software used to design smart watches, it will now be able to simulate destruction tests for such products.
Lifting Margins
Busch’s drive to lift margins has come under strain as weak demand in China diminished returns in Siemens’ digital industries unit, which makes products to automate factories. Siemens lowered its margin outlook for the division and is hoping to partially offset the decline with strong revenue growth from grid infrastructure products that power data centers, especially in the US.
Also on Wednesday, Altair reported a 13% increase in revenue for the third quarter. The company had net income of $1.8 million on revenue of $151.5 million, according to the statement.
The takeover of Altair surpasses Siemens’s biggest-ever acquisition, the purchase of oil-and-gas equipment maker Dresser-Rand Group Inc. for $7.6 billion including debt in 2015, according to data compiled by Bloomberg.
Siemens, which benefits from a “very strong balance sheet,” will consider further acquisitions as possibilities arise, Busch said.
“There are some assets which are available in the market and there are still opportunities there,” he said. “I do believe my people have more ideas how we can spend money in the future.”
--With assistance from Wilfried Eckl-Dorna, Ryan Gould, Katie Roof and Stefan Nicola.
(Updates with shares in fifth, analyst quote in seventh paragraph.)
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