Schneider Electric’s $22.6 Billion PTC Deal Puts It in the Global Industrial AI Race

The logo of the French company Schneider Electric, which is a global specialist in energy management and automation, in Rueil-Malmaison, west of Paris, Thursday, Sept. 22, 2016 (AP Photo/Michel Euler)

Schneider Electric has agreed to buy the United States based industrial software company PTC for $22.6 billion so that it can expand into the software and artificial intelligence space for manufacturers around the world.

Announced Oct. 5, the deal is an all-cash offer of $205 per PTC share, which is 42 percent above the closing price of the stock on Oct. 2. The companies expect the deal would combine PTC’s product-design and engineering software with Schneider’s energy and industrial systems, and they expect it to close in the third quarter of 2027, pending regulatory and shareholder approvals, according to the companies’ announcement.

PTC makes software manufacturers use to design products and manage information about them through production and servicing. Its tools, which include Creo for engineers to create digital product designs, and Windchill to organize product data and workflows, are used by manufacturers in industries ranging from automotive, aerospace, electronics and medical devices.

Schneider, based in France, sells energy management and automation equipment for buildings, factories and data centers. The company expects PTC’s software will add product and engineering data to its industrial AI platform, which currently includes information about factory processes and energy use. Schneider has also agreed to acquire industrial data and AI software provider Cognite in another deal announced in June.

The logo of German industrial conglomerate Siemens is pictured prior to the opening ceremony at the new headquarters in Munich, Germany, on June 24, 2016 (AP Photo/Matthias Schrader)

The acquisition could put Schneider in a stronger position in the industrial software space, where Germany’s Siemens and France’s Dassault Systèmes are also players. Industry analyst Interact Analysis said the purchase would extend Schneider’s reach from factory operations and energy management into product engineering. Siemens has also expanded its software business through acquisitions, including U.S. companies Altair Engineering and Dotmatics. Siemens offers engineering and simulation software, while Dassault’s tools connect product design with manufacturing. Adding PTC’s engineering tools to Schneider’s factory and energy systems could help it compete for a manufacturers’ business across design,production, and maintenance. 

Schneider is betting that tying product-design software in with factory and energy data will help manufacturers to use AI across a broader swath of production. And the deal is also indicative of the competition among industrial companies to provide digital tools to manufacturers whose operations and supply chains often span countries. Schneider says the combined business will use open systems, but the companies have not yet combined their products.

Investors reacted cautiously when the deal was announced. Shares in Schneider fell nearly 10 percent in Paris trading that day, while PTC’s stock rose after the offer was made public. Reuters reported that investors were weighing the size of the purchase, the premium Schneider offered and uncertainty about how AI could affect software companies.

Schneider expects the deal to generate €250 million in annual cost savings by the third year after closing and about €800 million in revenue synergies. The company also expects returns on the investment to exceed its cost of capital by the fifth year. These are Schneider’s expectations; the companies have not yet combined their operations. The projections are included in the companies’ SEC filing.

The purchase is expected to be financed with new shares and debt. Schneider said it plans to issue €5 billion to €6 billion in equity and raise €16 billion to €17 billion in debt. The deal still needs regulatory and shareholder approval before the companies can complete it.

According to Interact Analysis, adding PTC could strengthen Scneider’s challenge to Siemens and Dassault by connecting product engineering with factory operations. That could help Scneider compete for manufacturer’s business worldwide, offering more tools across design, production, and maintenance as it expands into industrial Ai. The analyst also noted that Siemens still has an advantage in advanced simulation software, so buying PTC alone would not close that gap.