The steady improvement in Tecnomatix Technologies (Nasdaq:TCNO), as seen in its all-time record sales, rising profits, and increase in liquid instruments, have put the company on the radar screen of companies seeking acquisitions. Capital market sources said that UGS of the US was negotiating with Tecnomatix's management to acquire the company at a company value of $200-230 million.
The company value reflects a sales ratio of almost 2 for Tecnomatix, indicating that the share price for the deal could reach $18. Tecnomatix is currently traded at $13.30; the proposed company value reflects a premium of over 35% on its market cap.
Tecnomatix said it did not comment on rumors. The response of Tecnomatix vice chairman Shlomo Dovrat, a shareholder in the company, was similar.
A former competitor
Tecnomatix specializes in solutions for planning and monitoring production processes in the electronics, aviation, and vehicle industries. UGS, the potential buyer of the company according to capital market sources, provides PLM (product lifecycle management) software and other services. UGS has an extensive customer base and 5,000 employees worldwide.
In March 2004, a private equity group of Bain Capital, Silver Lake Partners and Warburg Pincus acquired full ownership of UGS from Electronic Data Systems Corporation (NYSE:EDS) for $2 billion in cash. The transaction was the largest private equity investment ever made in a technology company. EDS had previously planned to float UGS, but sold it instead when the issue fell through. UGS's buyers implied at the time that they planned to expand the company through additional acquisitions.
UGS used to be in Tecnomatix's business of manufacturing process management (MPM), but abandoned the field because the Israeli company's solution was simply better. In August 2002, Tecnomatix and EDS (through UGS) began collaborating in sales, which expanded into a partnership, thereby improving Tecnomatix's standing with its competitor, Dessault of France. UGS controlled 205 of the MPM market at the time, and integrated solutions helped Tecnomatix reach new customers like General Motors (NYSE:GM) and Ford Motor Co. (NYSE:F), although it made no official announcement.
Ripe for sale
"The acquisition of Tecnomatix by UGS would be correct, logical and desirable," says ING Barings analyst Amit Yonay, who covers the company. "UGS is the leading candidate to buy Tecnomatix, as I predicted last year. I doubt that Tecnomatix's shareholders will sell the company for less than $18 a share. That's also my current target price."
Yonay said UGS was itself acquired at a multiple of 2.3 on its sales, and it was logical for Tecnomatix to be sold at a similar multiple.
Capital market sources say that Tecnomatix is ripe for sale. Sales will rise 15-20% this year to over $100 million. The company is expected to have a strong fourth quarter, with higher profits. The company's shareholders indicated in the past that they wouldn’t hesitate to sell the company for the right price.
Shlomo Dovrat is the largest shareholder in Tecnomatix, with a 8.4% stake, currently worth $13.6 million. Other large shareholders include Tecnomatix chairman and former CEO Harel Beit-On - 7.9%, worth $13 million; SPC, which former Prime Minister Ehud Barak was once involved with, and which acquired the controlling interest in Tecnomatix stake when it acquired US Data - 7.2%, worth $11.4 million; Yozma - 5.6%, worth $8.9 million; Carmel Ventures general partner Avi Zeevi - 1.7%; and Aharon Dovrat - less than 1%, worth $1.3 million.
Tecnomatix faces a major problem: its operating expenses are very high, compared with sales. "The reason for Tecnomatix's high expenses is that it is a global company with a presence in all markets - electronics and vehicles - which have a global deployment," says Yonay. "The concept of 'synergy' isn’t meaningless in this case. This is a concrete example; the compatibility between the companies is absolute."
Published by Globes [online], Israel business news - www.globes.co.il - on December 27, 2004