New AspenTech will be fully consolidated into Emerson financials and is expected to be accretive to adjusted EPS after year one
Emerson to Receive 55% Stake of New AspenTech; AspenTech Shareholders to Receive Approximately $87 Per Share in C*** and 0.42 Shares of New AspenTech for each AspenTech Share, Providing Upside through 45% Stake; New AspenTech Expected to Drive Double-Digit Annual Spend Growth, Best-in-Class Profitability, Strong Free C*** Flow and Be Positioned to Pursue and Complete Strategic Transactions; Emerson Reaffirms Fiscal Year 2021 Underlying Sales Guidance of 5% to 6% and Adjusted EPS Guidance of $4.06 to $4.08.
Emerson and AspenTech announced that the companies have entered into a definitive agreement to contribute Emerson’s industrial software businesses – OSI Inc. and the Geological Simulation Software business – to AspenTech to create a diversified, high-performance industrial software leader with greater scale, capabilities, and technologies (“new AspenTech”). Emerson will also contribute $6.0 billion in c*** to new AspenTech, which will be received by AspenTech shareholders, in exchange for a 55% stake in new AspenTech. New AspenTech will offer a highly differentiated industrial software portfolio with the capabilities to support the entire lifecycle of complex operations across a wide range of industry verticals, including design and engineering, operations, maintenance and asset optimization.
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Accelerating Emerson’s Industrial Software Strategy
The transaction accelerates Emerson’s software investment strategy as the company continues to build a higher growth, more diversified and sustainable portfolio, by creating an industrial software company with immediate scale and relevancy in a fast-paced and evolving market. The new company, which will retain the name AspenTech, enables Emerson to realize significant synergies and accelerate its software strategy to drive meaningful value creation. Majority ownership position in a highly valued, pure-play industrial software leader will give Emerson the platform and flexibility to strategically deploy capital for growth through continued investment and M&A. The transaction continues Emerson’s long history of delivering shareholder value. New AspenTech will be fully consolidated into Emerson financials and is expected to be accretive to adjusted EPS after year one.
Management Comments
“We saw an attractive opportunity to accelerate our software strategy to capitalize on the rapidly evolving industrial software landscape and advance Emerson’s high value portfolio journey,” said Lal Karsanbhai, President and Chief Executive Officer of Emerson. “Our customers are increasingly seeking partners to help realize stronger performance as they automate workflows in their facilities to optimize operations. New AspenTech will become an engine for both acquisition and organic growth.”
“Today’s announcement marks an exciting new era. This transaction enables us to advance our position as a premier, highly diversified industrial software leader poised for significant growth, strong financial performance and a vehicle to drive future software acquisitions, while providing immediate c*** value to AspenTech shareholders,” said Antonio Pietri, President and Chief Executive Officer of AspenTech, who will lead new AspenTech. “The new AspenTech will benefit from a larger and more diversified market, which we will be able to serve with a comprehensive software portfolio, an expanded global sales channel and an even stronger balance sheet reinforced by Emerson. Additionally, this transaction expands our ability to support customers’ global sustainability ambitions.”
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Emerson and AspenTech Creating a High-Performance Software Leader with Scale and Technology
Following completion of the transaction, new AspenTech will have a global footprint with strong go-to market capabilities and more than 3,700 employees. On a pro forma basis, new AspenTech is expected to have FY22 annual revenues of $1.1 billion, adjusted EBITDA of approximately $490 million and achieve double-digit annual spend growth through 2026. New AspenTech will have a high growth, predictable business model with 86% of pro forma revenues from software and 14% of revenues from services.
The new AspenTech will be an attractive environment for highly sought-after software talent, offering career opportunities to innovate in a technology-driven culture.
Benefits of the transaction include:
- New AspenTech Portfolio Spans the Full Asset Lifecycle: The new AspenTech will provide differentiated offerings in Industrial AI and asset optimization with Emerson’s grid modernization technology, advanced distribution management systems and geological simulation software. With Emerson’s strong capabilities, new AspenTech will have an end-to end software offering and be even better positioned to help customers improve their safety, reliability and production while reducing emissions.
- Diversified End Markets with Blue-Chip Customer Base: With the additional capabilities of OSI Inc. and Geological Simulation Software, new AspenTech will expand into new, high growth markets. AspenTech recently announced a commitment to invest $35 million in life sciences and metals and mining that will help accelerate adoption of new AspenTech’s solutions. The addition of OSI Inc. will enable new AspenTech to develop its transmission and distribution offering to support power grid modernization and ensure grid reliability.
- Significant Revenue and Cost Synergy Opportunities: Over time, new AspenTech is expected to drive significant revenue and synergy opportunities by transitioning OSI Inc. and the Geological Simulation Software business to a token and subscription-based business model, which AspenTech has successfully achieved for its existing portfolio. New AspenTech expects to deliver multiple, specific revenue growth opportunities by leveraging Emerson’s $120 billion global installed base and its sales force of nearly 12,000 salespeople.
- Best-in-Class Financial Profile: New AspenTech will be a leading player in the industrial software market with scale and strong free c*** flow generation to drive innovation and growth. On a pro forma basis, the company is expected to deliver double-digit revenue and free c*** flow growth over the next five years.
- Strong Platform for Future Acquisitions: Mergers and acquisitions will be a key pillar of new AspenTech’s go-forward strategy given the continued evolution and consolidation of the industrial software industry. With an expanded solution set, broader global footprint and larger installed base, new AspenTech will have access to a wider range of acquisition and investment targets across industries, products and geographies.
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