Follows the trend for big gulp deals in the CAD industry.
In a short, direct little bit of a press release, Autodesk announced that it had made a non-binding proposal to acquire all the outstanding share common stock of Altium, Limited (ASX: ALU) for AUD $38.30 to be implemented by way of a scheme of arrangement.
In an equally short, pleasant press release Altium replied that they appreciate Autodesk’s attention, but think they’re worth more than the Autodesk bid. The bid comes in at a 41% premium over Altium’s stock price at the time of the proposal. It adds up to almost $3.9 billion for Autodesk. Altium has made it clear it will entertain a higher bid from Autodesk and bids from other interested companies, so the game is on.
Isn’t it all kind of wonderful? The Motley Fool had a response that reminded us that traders should spend a lot more time paying attention to the companies they talk about. In this case, the company didn’t seem to understand Autodesk’s high-priced interest in Altium. Why does Autodesk want a PCB design company? Autodesk has a PCB design company in its Eagle software, and it’s also included in the Fusion 360 portfolio.
Yes, but Altium has a thriving customer base with interests in automotive, aerospace, consumer electronics, and medical devices. Autodesk is determined to build its manufacturing segment into a powerful competitor to market leaders Siemens, Dassault, and PTC. And, speaking of competition, Altium is pretty confident that Dassault and PTC might be interested in acquiring the PCB design company because that’s where the design and manufacturing industry is headed.
Siemens’ acquisition of Mentor Graphics in 2016 has proven to be an excellent deal for the German conglomerate. Mentor, now known as Siemens EDA, has thrived. The EDA group has significantly boosted the revenues of Siemens Digital Industries, its home division within the Siemens behemoth. EDA is integral to Siemens’ vision of a comprehensive digital twin.
Autodesk wants some of that and maybe just as important. The company would rather not see Dassault or PTC get it.
Altium has revenues in the $200 million range, but it has set a goal for $500 million and 100,000 subscribers by 2025. Altium CEO Aram Mirkazemi says his company has been set back a bit in its ambitions by the Covid pandemic, but he says Altium’s business in China has recovered. The company predicts its revenues for 2021 will come in at the low end of its guidance as they transition to the cloud has negatively affected its revenues. The company has reiterated that it is on track to achieve its 2025 goal.
Autodesk has some excellent reasons for wanting Altium. For one, because the company has already gone through the hard work of transitioning to the cloud. It has absorbed at least some of the readjustment of its revenues that inevitably follows such a transition. Altium is optimistic about its future, and so is Autodesk. The company is even more confident about its ability to handle and absorb a significant acquisition like this. It must be, it has already undertaken the purchase of Innovyze, which it wants for its ability to give Autodesk a stronger position in the designing and building infrastructure.
It’s up to Autodesk to now prove it can integrate EDA into its product flow in a way that will encourage its users to use it. In the past, they were not so successful with Eagle. Some observers have suggested that Autodesk wants Altium for its user base. It makes sense. Instead of trying to drag its existing user base over to EDA, it might have better luck dragging Altium’s customers over to Fusion 360 as Autodesk rapidly builds out its capabilities.
What do we think?
According to the Motley Fool’s Bret Schafer, who holds shares of Autodesk, “proposing to spend almost $4 billion to acquire a company with less than $200 million in annual revenue ’doesn’t seem like a great long-term investment.”
If Autodesk’s executive team can do what they believe they can do with Altium, they have an opportunity to significantly elevate the competitive position of Autodesk’s manufacturing segment. Still, Schafer’s hand wringing is understandable. The company is pretty much betting its annual revenue of $3.79 on this deal.