As one of the two largest players in the fast-growing market for product lifecycle management (PLM) software, UGS Corp., Plano, Texas, continues to gobble up outside vendors and technologies with an eye toward filling out its PLM product suite.
Since May last year, when UGS was spun out by former owner Electronic Data Systems Corp., also of Plano, the new company has completed three technology acquisitions. And on Jan. 4, UGS announced plans to add another notch to its belt, with the acquisition of Tecnomatix Technologies Ltd., a Herzlia, Israel, provider of manufacturing process management (MPM) software.
Under terms of the deal, UGS will pay about $228 million in cash to Tecnomatix shareholders. The transaction is expected to close by March 31. UGS has annual revenues of about $1 billion.
Some industry watchers see the deal as a positive move for UGS that will position the company to compete more effectively against the other top, broad-line global PLM supplier—Dassault Systemes, of Paris. Dassault and UGS have lately been running neck-and-neck for the number one position in the worldwide PLM market, which totaled more than $5 billion in 2003, according to a recent report by ARC Advisory Group Inc., of Dedham, Mass. ARC projects 11.5 percent compound annual growth for the PLM market through 2008.
By acquiring the Tecnomatix MPM line, which competes against the Delmia product family from Dassault, UGS will become a stronger PLM player, says Alison Smith, senior research analyst at Boston-based AMR Research Inc. Until now, UGS has been missing a substantial MPM offering, Smith says. UGS “has been partnering with Tecnomatix to have access to this kind of capability for the past couple of years,” she notes. “But for people who are shopping for PLM systems, UGS is going to have a really strong offering now. It won’t be just Dassault with its Delmia product. UGS will be able to come to the table and say, ‘Hey, we’ve got that feature and functionality too,’ ” as Smith puts it.
With annual sales of about $100 million, Tecnomatix is a recognized leader in MPM—one of several software categories that make up the broader PLM space. Sometimes called “digital manufacturing” software, the MPM category includes manufacturing process design, planning and simulation. Worldwide sales of MPM products are much smaller than those of some other PLM categories, such as computer-aided design and engineering, or product data management. But MPM is considered a necessary ingredient in any PLM product suite that aims to provide capability for full, “cradle-to-grave” management of products.
UGS currently offers its own MPM products within its e-Factory digital manufacturing suite, says Al Hufstetler, UGS vice president of marketing for the e-Factory line. Further, under terms of a strategic partnership announced in August 2002, UGS has also been selling and servicing Tecnomatix products, he points out, and the two companies have been working closely together to achieve tighter integration of Tecnomatix products with the UGS line. The Tecnomatix acquisition will accelerate that integration process, says Hufstetler. The amount of overlap between UGS and Tecnomatix MPM products is relatively small, he adds.
UGS and Tecnomatix executives say the acquisition will not only enable UGS to broaden its PLM product suite, but will also help accelerate the growth of digital manufacturing within the PLM universe. In the past, Tecnomatix has faced issues in convincing potential customers to use its MPM products because they weren’t part of a larger, integrated PLM package, says Amir Livne, Tecnomatix executive vice president for marketing and business development.
“We had the knowledge and the technology to make manufacturing happen, but still, the IT (Information Technology) departments always wanted integration as well,” Livne says. “So now, by bringing these two companies together, we can also better satisfy the strategies of our customers, allowing IT and the manufacturing vice president, for example, to be on the same page.”
At CIMdata Inc., an Ann Arbor, Mich., PLM consulting firm, President Ed Miller notes that the addition of the Tecnomatix line will “put UGS in control of the development and support of technologies that are now a significant portion of its program.” As a result, Miller says, the deal should help boost customer confidence in the ability of UGS to deliver a complete PLM solution. And it further establishes the position of UGS and Dassault as “the two big gorillas” in the digital manufacturing market space, he adds.
As an added bonus, the Tecnomatix product line will also provide UGS with other capabilities that UGS had not taken advantage of through the two companies’ earlier strategic partnership, Miller points out. These include “a whole product suite that is focused on digital manufacturing in the electronics industry,” he says, as well as manufacturing execution system (MES) technology that came with Tecnomatix’s acquisition of USData Corp. in September 2003.
UGS’s Hufstetler agrees that both of the latter technologies offer intriguing possibilities. Combining UGS’s mechanical manufacturing products expertise with Tecnomatix product strength in printed circuit boards “really rounds out our portfolio,” he says. And the MES technology is “a whole new area for us” that may offer further integration possibilities down the road, he adds.