Canadian Electrical Wholesaler

Schneider Electric

September 6, 2017

Schneider Electric has agreed to merge with British software company AVEVA in a deal worth nearly $4 billion. The two companies tried to merge two previous times, and plan to have the deal completed before the end of 2017. Schneider will own 60% of the combined company.

The merger will create the “Enlarged AVEVA Group,” with a goal of creating a global leader in engineering and industrial software. Schneider and AVEVA directors say the combined company will create an extensive technology portfolio and maintain its relevance in key markets. The combined directors also believe the merger will offer solutions covering all aspects of digital asset management, and is positioned to take advantage of future merger and acquisition opportunities.

The “Enlarged AVEVA Group” is preparing to bring customers from both companies together, while sharing revenue and cutting expenses.

“We believe that through increased scale and complementary footprints, the transaction will generate synergies that will benefit customers and shareholders alike,” Jean-Pascal Tricoire, Schneider Electric Chairman and CEO, announced.

“We are pleased to reach an agreement on the combination of AVEVA and the Schneider Electric Industrial Software Business, thereby creating a global leader in engineering and industrial software,” Tricoire added. “The Combination will address customers’ requirements along the full asset life cycle in key industrial and infrastructure market through a unique portfolio of asset management solutions from design & build to operations. It will also create the right environment and structure for the software teams to aggressively develop their business, while benefiting from Schneider Electric’s multiple go-to-market channels and segment expertise around the world, as well as the EcoStruxure platform and its ecosystem of partners.”

We are delighted to have reached agreement on the Combination with the Schneider Electric Software Business,” Phillip Aiken, Chairman of AVEVA commented. “The transaction will be transformational to AVEVA, creating a global leader in industrial software, which will be able to better compete on a global scale. AVEVA will significantly expand its scale and product portfolio, increase its capabilities in the owner operator market, diversify its end user markets and increase its geographic exposure to the North American market, in line with our strategic goals.

Strategic rationale 

The directors of Schneider Electric and AVEVA believe that there is a clear and compelling business logic and strategic rationale for a combination of the Schneider Electric Software Business and AVEVA, for reasons including: 

  • The combined entity will be a global leader in engineering and industrial software, with scale and relevance in key markets as well as an extensive technology portfolio, with combined revenues and Adjusted EBITA of approximately £657.5 million and £145.8 million respectively for the financial year ended 31 March 2017 (“FY17”);
  •  The company will offer a comprehensive combined product portfolio, offering an unmatched set of solutions covering all aspects of digital asset management from process simulation to design, construction and manufacturing operations management and optimisation; and
  •  The Combination will create an Enlarged AVEVA Group well-positioned to take advantage of future M&A opportunities building on its scale and comprehensive industry and lifecycle solution coverage. 
    This transaction will, among other things:
  •  Enhance value proposition of Schneider Electric’s Industrial IOT platform (EcoStruxure) for industrial & infrastructure customers; 
  • Unlock additional value at the Enlarged AVEVA Group and Schneider Electric through the potential for revenue and cost synergies, leveraging complementary end-markets and 

    geographical exposures, customers and product portfolios. Schneider Electric and AVEVA will enter into a series of operational agreements in order to optimise the generation of synergies for the benefit of both parties;

  • Result in Schneider Electric contributing its Industrial Software Business at an Adjusted EV/EBITA FY17 multiple of c.19x1, broadly in line with AVEVA’s multiple; and

  • Upon completion, the new company, with an accretive margin, is expected to be fully consolidated in Schneider Electric accounts within the Industry division. 
    Certain developments at the Schneider Electric Software Business over the course of 2016 and 2017 have also reinforced the strategic rationale of the Combination, including:

  • The Schneider Electric Software Business’ legal reorganisation now being substantially complete, such that the Schneider Electric Software Business will comprise a stand-alone business unit sitting within a set of separate legal entities within Schneider Electric (subject to certain support functions to be provided by Schneider Electric for a period to the Schneider Electric Software Business pursuant to the Transitional Services Agreement); and

  • The addition of the oil and gas pipeline management solutions division of Telvent, a company that Schneider Electric acquired in 2011, to the Schneider Electric Software Business, creating a set of assets with a market leadership position which is complementary to the combined portfolios of the Schneider Electric Software Business and AVEVA, thus enhancing the scale of the Schneider Electric Software Business as well as the overall strategic rationale of the Combination

Key terms of the Transaction

The key terms of the combination include:

  • The combination of AVEVA and the Schneider Electric Software Business; 
  • On completion, following the issue of ordinary shares in the capital of AVEVA to Schneider Electric, Schneider Electric will own 60 percent of the Enlarged AVEVA Group on a fully diluted basis while existing AVEVA shareholders and participants in the AVEVA share plans will retain 40 per cent equity ownership (on a fully diluted basis).
  • The value of the consideration shares to be issued to Schneider Electric is approximately £1.7 billion based on the AVEVA Group closing share price at the Latest Practicable Date. This represents an EV FY17 Adjusted EBITA multiple of approximately 19x for the Schneider Electric Software Business, broadly in line with AVEVA’s multiple; Shareholders will have an opportunity to benefit (through their shareholding in the Enlarged AVEVA Group) from the enhanced market scale and reach of the Enlarged AVEVA Group together with the revenue and cost synergies which are expected to arise over the medium term; 

  • Schneider Electric will pay to AVEVA £550 million in cash (approximately 858 pence per Ordinary Share) which, taken together with its contribution of the Schneider Electric Software Business, will mean that Schneider Electric will hold a majority of the Enlarged AVEVA Share Capital. Such cash will be distributed to AVEVA shareholders (excluding Schneider Electric) at or around completion; and

  • AVEVA will also distribute £100 million (approximately 156 pence per Ordinary Share) in cash to shareholders (excluding Schneider Electric) at or around completion, such amount representing a significant proportion of the excess cash held on AVEVA’s balance sheet after allowing for transaction costs and a prudent view of AVEVA’s working capital requirements.   

Completion, which is expected to be at or around the end of 2017, is subject to the satisfaction of a number of conditions including, amongst other things, applicable regulatory and anti-trust approvals having been obtained, AVEVA shareholder approval of the Combination, and re-admission of the Enlarged AVEVA Group.

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