industrial tech m&a overview - vc for iot · 2020-02-14 · industrial iot adoption by...
TRANSCRIPT
Industrial Tech M&A OverviewKBCM Technology GroupDave Kalez – Managing Director, Energy & Industrial Technology
1KBCM Technology Group
Table of Contents
Section I: Trends in Industrial IoT M&A
Section II: Trends within IIoT
Section III: Maximizing Value in an M&A Situation
Section IV: IIoT: A Critical Business Strategy
Section ITrends in Industrial IoT M&A
3KBCM Technology Group
$176B$223B
$284B$360B
$457B
$580B
$736B
$934B
2018 2019 2020 2021 2022 2023 2024 2025
The Global IIoT Opportunity
Source: PTC “State of the Industrial Internet of Things” – February 2018, Grand View Research – April 2018
Industrial IoT Adoption by Industry
Industrial IoT Market Value: 2018 – 2025
27% CAGR
Industrial IoT Adoption by Region
45%
33%
22%
0%
10%
20%
30%
40%
50%
Americas EMEA Asia Pacific
25%23%
13%11%
8% 7% 6%3% 2% 3%
0%
10%
20%
30%
IndustrialProducts
Electronics &High Tech
Automotive Federal,Aerospace &
Defense
Retail &Consumer
Medical Devices Software Utilities / Oil &Gas
Communications Other
The market value of IIoT is estimated at $176B for 2018, growing to $934B by 2025
4KBCM Technology Group
Industrial IoT Investment Activity Remains Strong
Source: PitchBookNote: Excludes M&A transactions with deal value greater than $5B; capital invested includes disclosed figures only
IIoT is transitioning from a nascent technology into a critical business investment for organizations in 2018
However, many traditional industrial players lack core competencies in software engineering and data science, making it more efficient to acquire IIoT capabilities
Quarterly IIoT Private Placement Activity (2016 – Present)
$294M
$444M$305M
$714M
$278M
$446M$470M $457M
$586M151
125105 107
157
111
143
10285
0
50
100
150
200
$0M$100M$200M$300M$400M$500M$600M$700M$800M
2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1
Deal
Coun
t
Capit
al Inv
ested
($M)
Capital Invested Deal Count
Quarterly IIoT M&A Activity (2016 – Present)
$230M
$1.2B
$612M
$211M$126M $68M
$465M$288M
$1.1B
16
27
13
18 17
13
21
16 17
0
5
10
15
20
25
30
$0M
$250M
$500M
$750M
$1B
$1B
$2B
2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 2017 Q4 2018 Q1
Deal
Coun
t
Capit
al Inv
ested
($M)
Capital Invested Deal Count
5KBCM Technology Group
Industrial Leaders Transition to Software
DARIUS ADAMCZYK – CEO“Second, we will build a software / sensor strategy
into everything we develop. Third we will take even bolder bets in our new product development and leverage the latest technologies to deliver superior value to customers. […] all Honeywell businesses will emphasize software along with other innovations in order to stay ahead in providing leading solutions” Honeywell 2017 annual report
JIM HEPPELMANN – CEO“If there will be billions of connected things in the world, every company will be affected in many ways, so we’ll need millions of new applications to address all of the different settings and role players. Creating new applications is the key, and PTC’s focus has been to make all of this easy so that domain experts coming from the business rather than from IT can quickly develop the applications that unlock the tremendous value opportunity of the IoT” Jim Heppelmann on the Future of Smart, Connected Products
JEAN-PASCAL TRICOIRE – CEO“We are bringing our customers integrated and digitized solutions, based on EcoStruxure, to help them navigate 2 growing trends: “energy transition” - the shift towards more sustainable and more efficient power; and “digital transformation” - the adoption of increasingly automated and data-driven technologies.” Schneider Electric 2017 Annual Report
JOE KAESER – CEO “Worldwide, Siemens the recognized shaper, knowledge leader and market leader in the area of industrial digitalization. Like no other company, we can combine the virtual world of software with the real world of production. Innovation and digitalization are now inseparable. Innovation drives digitalization and digitalization drives innovation.”Annual Shareholders’ Meeting of Siemens AG (January 2018)
Industry leaders continue to communicate their commitment to a software-driven strategy
ANTONIO PIETRI – CEO “Historically, it has been advanced applications sitting on hardware that have created value for customers. Similarly, we believe it will be the applications on top of IoTplatforms that will capture the value to drive optimal reliability for these customers.” Q3 2018 Earnings Call (April 2018)
6KBCM Technology Group
Digital Transformation Reshaping the Global Economy
Source: 451 Research, CapIQIIoT / IIoT-Enabling Technology
BLUE IRON SYSTEMS
(Continued on next page)
7KBCM Technology Group
Digital Transformation Reshaping the Global Economy
Source: 451 Research, CapIQIIoT / IIoT-Enabling Technology
(Continued on next page)
8KBCM Technology Group
Source: 451 Research, CapIQIIoT / IIoT-Enabling Technology
Digital Transformation Reshaping the Global Economy
BLOWDOWN(SULSIM 7 ASSET)PSVPLUS
9KBCM Technology Group
Source: 451 Research, CapIQIIoT / IIoT-Enabling Technology
Industrial Tech and Traditional Industrial Acquisitions by Financial Sponsors
Section IITrends Within IIoT
11KBCM Technology Group
Trends in Vertical Software M&A
Sources: IDC Worldwide, 451 Research
The M&A market for software companies remains robust, supported by the high growth profile and positive outlook for the industry as software applications become increasingly integrated into traditional industries
Worldwide spending on public cloud services and infrastructure is projected to reach $160B in 2018 (+23.2% Y/Y), with SaaS-related spending capturing nearly 2/3 of that total
The industry that is forecast to spend the most on public cloud services in 2018 is discrete manufacturing ($19.7B)
Vertical-specific software companies have become increasingly more attractive targets as companies are realizing the increased benefits of specialization
Tends to be a highly sticky solution – once a well-executed offer becomes available, referrals and a high rate of adoptability can result in quick scaling
Non-traditional software companies have become acquisitive in the space in order to promote cross-selling opportunities and realize cost synergies with their existing business lines
Precedent Transaction LTM EV/Revenue Multiples: Mean = 7.7x / Median = 5.3x
12KBCM Technology Group
Trends in Communications / Networking M&A
The advent of the boom in networking technologies and mobile devices and applications has changed the fundamental nature of legacy communications companies’ business in terms of operations management, customer acquisition/retention and new revenue streams
This sea change in how users interact with information, entertainment and each other has led to strong consolidation and increased M&A activity within the communications software industry
Large telecoms infrastructure vendors as well as smaller players have been active in plugging gaps through M&A
Expanding into adjacent industries such as software, IT services, digital media, IoT and analytics
Further consolidation is expected in the near term as the communications industry continues the transition towards 5G, the virtualization of networks, cloud communication, IoT and Big Data
Precedent Transaction LTM EV/Revenue Multiples: Mean = 4.1x / Median = 3.9x
Section IVMaximizing Value in an M&A Situation
14KBCM Technology Group
Maximizing Value in an M&A Process – Best Practices Company Preparedness
― Critical to have all financial and legal information well organized internally to prepare for the due diligence process― Best accomplished through the use of a virtual data room that allows for a current, easily accessed snapshot of the
company― Identifying “Business Owner” at potential acquirers in advance― Select team members who will be part of process and make sure they understand process objectives and company
positioning
Keeping the Eye on the Ball― The M&A process can be hugely distracting for a company and its employees― Buyers will closely monitor the financial performance of the company during the due diligence period and compare it with
the company’s projections― Timing is critical – balance company performance, state of the market and team availability
Negotiation Process― Purchase price isn’t everything – terms of an offer matter as well― Important factors can include: consideration, purchase price adjustments, earn-outs, tax structure and time to close― Buyer’s sincerity / motivation is a significant factor― Leverage previous business relationship and “optionality” (you always have it)
Hiring a Competent Advisor― Retaining a qualified and experienced advisor enables management to keep their focus on what matters – running the
business― Don’t wait until it is too late
15KBCM Technology Group
The Company’s Role in Effecting Valuation
Communications
Due DiligenceOperations
Alignment with Board
Maintain or improve performance during the process Set reasonable projections (better to
hit a conservative forecast than to miss an aggressive forecast) Management to maintain focus on
the business Team alignment
Stay aligned with advisors at all times Maintain one point of contact unless
otherwise determined Work closely with advisor before
dialogue with potential buyers Limit the number of individuals with
knowledge of the transaction
Be prepared with data room in advance of process High degree of organization
signals a real process Adds to the “fear factor” and drives
deal momentum Expect highly detailed requests
later in the process
Prevent attempts by buyer to split Board / management relationship Negotiate any management carve-
outs (if any) prior to M&A process Agree upon a communication protocol
for transaction Determine whether entire Board,
committee or single member will report on routine matters
Section IVIIoT: A Critical Business Strategy
17KBCM Technology Group
IIoT: A Critical Business Strategy
Transaction Background Premier platform for handling complex data integration, data analysis, and predictive automation for connected devices
on the IIoT
Purpose-built for the IIoT, Bit Stew’s MIx Core data intelligence platform solves the data integration challenge at scale for complex industrial data environments
Prior to the acquisition, the Company was in a transitional phase from an on-premise perpetual license model to a cloud-based subscription model
Integration of Bit Stew will help GE to accelerate its industrial offerings, providing customers with contextual understanding of their assets and operations
has been acquired by
$153,000,000
November 2016
Develops and markets industrial analytics software that provides operational intelligence and sophisticated cloud and edge processing capabilities throughout the entire organization
RtTech’s Cipher is a non-intrusive approach to IIoT, which leverages any existing infrastructure using edge device technology
RtTech also offers two industrial apps: RtDUET, a real-time OEE, downtime tracking, and asset management app to boost production performance, and RtEMIS, an energy management app to help reduce energy consumption
Acquisition strengthens AspenTech’s asset optimization strategy by providing sophisticated cloud and edge processing technology that captures and aggregates critical data from assets throughout the plant and across the enterprise
Transaction Background
has been acquired by
Undisclosed
December 2017
18KBCM Technology Group
Disclosure
KeyBanc Capital Markets is a trade name under which the corporate and investment banking products and services of KeyCorp and its subsidiaries,KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC (“KBCMI”), and KeyBank National Association ("KeyBank N.A."), are marketed. Securitiesproducts and services are offered by KeyBanc Capital Markets Inc. and by its licensed securities representatives. Banking products and services areoffered by KeyBank N.A.
A number of our corporate and institutional team members are employed by both KeyBanc Capital Markets Inc. and KeyBank N.A. These "dual employees"are licensed securities representatives of KeyBanc Capital Markets Inc., and they are there to better serve your needs, by making available both securitiesand banking products and services.
Further, in connection with our effort to deliver a comprehensive array of banking and securities products and services to you in a seamless manner, fromtime to time KeyBank N.A. and KeyBanc Capital Markets Inc. will share with each other certain non-public information that you provide to us. Of course, asalways, this information will not be shared or otherwise disclosed outside of the KeyCorp organization without your express permission. Please also beassured that, as with other banks and broker-dealers, KeyBank N.A. and KeyBanc Capital Markets Inc. adhere to established internal procedures tosafeguard your corporate information from areas within our organization that trade in or advise clients with respect to the purchase and sale of securities.
KEYBANC CAPITAL MARKETS INC. IS NOT A BANK AND ITS OBLIGATIONS ARE NOT OBLIGATIONS OF KEYBANK NATIONAL ASSOCIATION.KEYBANK NATIONAL ASSOCIATION IS NOT RESPONSIBLE FOR THE INVESTMENT BANKING OR SECURITIES-RELATED PRODUCTS ANDSERVICES SOLD, OFFERED OR RECOMMENDED BY KEYBANC CAPITAL MARKETS INC. INVESTMENT BANKING AND SECURITIES-RELATEDPRODUCTS AND SERVICES SOLD, OFFERED OR RECOMMENDED BY KEYBANC CAPITAL MARKETS INC. ARE NOT DEPOSITS OR OTHEROBLIGATIONS OF KEYBANK NATIONAL ASSOCIATION, ARE NOT GUARANTEED BY KEYBANK NATIONAL ASSOCIATION AND ARE NOTINSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION. SECURITIES-RELATED PRODUCTS ARE SUBJECT TO INVESTMENT RISK,INCLUDING POSSIBLE LOSS OF PRINCIPAL.