Product lifecycle management technology provider PTC announced today that it has signed a definitive agreement to acquire service parts planning and management provider Servigistics for approximately $220 million in an all-cash deal. This deal is subject to regulatory approval along with other customary conditions.
This announcement is a rather significant event concerning the Service Parts Planning and the Service Lifecycle Management technology market segment.
About three years ago, in July of 2009, Supply Chain Matters alerted our readers to be watchful of software market consolidation in the service parts planning area. Our view was precipitated by the announcement that Marlin Equity Partners, an equity firm with a track record of buying and selling technology companies, had acquired Servigistics. That game plan has obviously finally consummated with today’s PTC announcement.
For its part, Marlin managed to consolidate many known providers in the service parts planning and management domain, including the Service Network Solutions (SNS) arm of the former Click Commerce, which had previously consolidated the former Xelus, World Chain and Optum software offerings. At the time of the 2009 announcement, the web-native Servigistics platform was entirely different than the existing SNS software components, and many challenges were ahead in integrating the platforms. Marlin subsequently orchestrated the acquisition of service knowledge management provider Kaidara in April of 2010, along with a strategic partnership with business services provider Genpact in April 2011. In 2009, Servigistics arch competitor MCA Solutions launched an aggressive campaign in urging the market to be exercise caution, since the landscape of independent software was narrowing. The relationship remained highly competitive.
In a sudden and significant announcement just four months ago, Servigistics announced a termed merger with MCA Solutions. Our Supply Chain Matters commentary in March noted that whether the market considered it a merger or a takeover, the deal was consummated and the market had lost another independent provider. In its March announcement, Servigistics stated its intent to integrate various MCA software applications into the Servigistics Service Lifecycle Management portfolio. MCA provided Servigistics a strong service parts planning and optimization concentration in durable goods manufacturing, which included aerospace and defense, high tech, medical equipment among others, along with a stellar grouping of well-known customers.
As a product of today’s announcement, we now definitively know that the combined Servigistics amassed $80 million in current revenues but with single digit margins. License revenues were in the order of 20-30 percent, implying that the bulk of revenues came from maintenance and added services.
Today’s PTC announcement adds yet another new dimension. In its press release and on the briefing call to analysts, PTC management indicates that Servigistics will be positioned to enhance the existing portfolio of PTC Service Lifecycle Management (SLM) solutions that address areas of warranty and contract management, service parts definition and technical information. PTC rightfully points out that its reputation in the market is focused on optimizing the way companies create and manage Product Lifecycle Management (PLM). This acquisition provides a significant opportunity to now enhance that capability into areas of service parts planning and lifecycle service management dimensions. The reality however is that the portfolio, when combined, is offered to two entirely different buying audiences with different needs, one being engineering and product management, the other being services management and supply chain. In the analyst briefing session, PTC management hinted that the ultimate integration may indeed involve two stacks of technology components that are tailored to each buying audience, and bring together the technologies of both companies. Another implication from today’s announcement is that major ERP, enterprise and cloud based software players such as IBM, Oracle, SAP and Salesforce.com must now deal with a more powerful competitive offering in this broader aspect of Service Lifecycle Management.
The most important takeaway from this commentary however is directed at existing Servigistics customers. Your vendor relationship has obviously been rocked yet again, and now is the time to take pause to ascertain what happens next. Previous assurances or commitments regarding product integration and direction are now subject to scrutiny. Supply Chain Matters also has open doubts as to whether a lot of progress was made in the MCA integration, and now, comes yet another integration challenge.
PTC has indicated to Wall Street that this acquisition brings opportunities for increased industry penetration and cross-selling opportunities. It also indicated the potential for “cost synergies”, meaning cutbacks in redundant staffing and other activities, although PTC management pointed out that some key Servigistics staff will be offered incentives to remain. There does not seem to be any indication of whether Servigistics will remain an independent entity. The very best action that PTC can do once this merger is consummated is to clearly communicate to existing Servigistics customers a plan of customer support and future development intentions. Servigistics customers deserve no less since the road has been littered with previous intents and commitments.
Aftermarket service management has evolved to be a very critical component of business strategy with highly significant revenue potential for manufacturing firms. The technology and innovation landscape supporting this critical area has undergone tremendous change, no thanks to Marlin Capital Partners. The challenge now shifts to PTC to provide additional innovation with compelling technology alternatives to manage both business process and agile decision-making for this area, while providing existing service management customers a viable strategy of support for existing needs.
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