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Schneider Electric S.E. (SBGSF)

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  • Bloomberg

    GM and Nikola Are a Match Made in Tesla Hell

    (Bloomberg Opinion) -- If you want something done right, do it yourself. If you are an old-school manufacturer and want credit from investors for innovation, make sure someone else’s name is attached. General Motors Co. on Tuesday announced a strategic partnership with Nikola Corp. that will give it a $2 billion equity stake in the electric-vehicle startup. Rather than pay cash for the ownership foothold, GM is paying in services: It will be the exclusive supplier of fuel cells for Nikola’s Class 7/8 trucks outside of Europe, provide access to its battery technology and take on the manufacturing and engineering work for Nikola’s Badger electric-pickup model. GM expects more than  $4 billion in benefits from the tie-up, between the equity stake and additional payments for manufacturing and parts work.GM’s backing provides a much-needed dose of credibility for Nikola, whose shares added a more than 30% gain on Tuesday to a high-flying streak that belied a lack of meaningful revenue thus far. The partnership will save the company an estimated $5 billion in manufacturing and engineering expenses; basically, it no longer needs to literally reinvent the wheel. But Nikola’s brand and buzz also provide valuable credibility for GM’s electric vehicle aspirations. Arguably, the 112-year-old titan from Detroit is the one who needed this partnership more. The market reaction to the news on Tuesday helped underscore how little the share price movements for both legacy and upstart automakers recently have had to do with the actual business of making cars. These days, it’s all about the packaging and messaging. GM rallied more than 7%, while news of its partnership with Nikola was one factor in a rout of Elon Musk’s electric-car darling Tesla Inc. that was the worst on an intraday basis since March. Tesla’s failure to gain membership in the S&P 500 Index also damped enthusiasm, while news of derivative bets by SoftBank Group Corp. underscored the role financial speculation and hype had played in the company’s steep rise this year, as my colleague Chris Bryant noted. The Nikola-GM partnership will pose strong and well-financed competition for Tesla's much-promoted Cybertruck, but given how much GM is bringing to the table in this transaction and its pre-existing plan to launch an electric version of its Hummer, that threat arguably already existed. It’s now just marketed better. And that really is the genius of this deal. It’s nearly impossible for manufacturers like GM to rebrand themselves for the digital age in the eyes of investors, and not for a lack of trying or a lack of success. GM is in a position to draw on decades of experience to capitalize on new innovations, whether that’s electrical vehicles, autonomous driving or predictive-maintenance software, but legacy investors have decades of memories of false steps and are more interested in a steady stream of dividends and share buybacks. It has poured billions into electric vehicles, and the willingness of Nikola to partner with the company and incorporate its battery and fuel-cell technology into its products is a strong testament to its progress. But Nikola, not GM, is the one with the sky-high valuation.It’s telling that GM shares had their best monthly performance since 2011 in August — not because of anything particularly notable that the company had done but because of a raft of speculation about an eventual spinoff of its electric-vehicle business.This may be where GM is eventually headed in its partnership with Nikola. A deal could be structured similarly to Schneider Electric SE’s 2018 agreement to fold its software operations into Aveva Group Plc and take a minority stake in the combined company; as I wrote last month, the benefits of that set-up were clear in the investor reaction to Aveva’s pricey $5 billion takeover of industrial-software company OSIsoft. For now, the Nikola deal provides GM with some of the benefits of a spinoff, without the headaches of actually carving out the business and standing it up on its own. But it wouldn't be surprising to see the relationship continue to deepen and evolve. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column for Bloomberg News.For more articles like this, please visit us at now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • Aveva’s $5 Billion Deal Is First of Many as Factories Go Digital

    Aveva’s $5 Billion Deal Is First of Many as Factories Go Digital

    (Bloomberg) -- Aveva Group Plc’s $5 billion acquisition of SoftBank Group Corp.-backed OSIsoft last week will make the little-known software company one of the U.K.’s largest publicly traded tech companies. It may also make it a target.Aveva, based in Cambridge, England, makes software for industrial firms and specializes in tech that can take data from sensors in factories to predict malfunctions and find ways to improve output. As manufacturers have been pushed to upgrade technology to deal with more remote working and monitoring during the coronavirus lockdowns, that niche has fuelled growth.Chief Financial Officer James Kidd said that he wants Aveva to continue to expand through deals, scooping up more of the small tech companies that have blossomed around this industry in recent years and incorporating them into an increasingly global enterprise.Kidd and his colleagues already have experience with dealmaking: Aveva merged with French industrial giant Schneider Electric SE’s software business in 2018 in a transaction that left Schneider as its majority shareholder.“We learned a lot through the Schneider-Aveva merger,” Kidd said in an interview. “It’s a playbook we could use again first and foremost. The sector is obviously consolidating and we want to play a major part in that.”With a gross margin that beat Microsoft Corp.’s last fiscal year, according to data compiled by Bloomberg, and subscription revenue that grew 30% in the quarter ending in June, the company’s success could draw the attention of bigger rivals. The total addressable market for all types of industrial software makers is expected to grow more than 30% to over $56 billion by 2024 as more factories deploy digital tools, according to research from the ARC Advisory Group.“It was in most companies’ three-to-five-year plan, then once the pandemic came, it really accelerated,” said Craig Resnick, vice president of consulting at ARC Advisory. “It’s really difficult to operate these plants remotely without having all the right tools -- not only to be able to monitor and visualize and control what goes on in the plant floor, but also to create digital models of some of the assets on the factory floor.”Aveva is in a sweet spot having software development expertise and an intimate knowledge of the needs of industrial companies, Chief Executive Officer Craig Hayman said. Companies that don’t have both sets of skills find making this type of product much more difficult.“It’s a little harder for some of the bigger software companies to do this,” said Julian Serafini, an analyst at Jefferies Financial Group Inc. “It doesn’t mean they won’t try, but Aveva is well-positioned from this angle of specialization.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.

  • This Market Loves a $5 Billion Growth Story

    This Market Loves a $5 Billion Growth Story

    (Bloomberg Opinion) -- It’s an unusual deal. A U.K. bidder has won a global auction for a $5 billion technology business, paying a punchy price and asking its shareholders to stump up one-third of its market value in cash to pay for it. But this is a forgiving environment when the purpose of M&A is buying growth, and that’s good news for sellers, including Japan’s SoftBank Group Corp.Circumstances conspired to make Osisoft, a provider of software for industrial applications, available. SoftBank, with a 45% stake, has been tidying up its portfolio and raising cash to cut leverage. Majority shareholder and founder J. Patrick Kennedy was clearly open to a transaction that secured his company’s future within a stronger parent.Meanwhile, winning bidder Aveva Group Plc was clearly keen. The deal values Osisoft at a high 33 times trailing operating profit. Osisoft’s revenues have been growing around 10% a year, and operating margins have expanded from 21% in 2016 to 31% currently. Even assuming that rate of growth continues, and margins expand further, generating more than mid-single digit returns on the purchase price looks like a challenge within five years. That said, Aveva’s aspirations for increasing Osisoft’s sales could play into boosting the returns on the investment, as will tax savings arising through the accounting treatment of the acquisition.Aveva came to the situation armed with a strong share price to use as an acquisition currency. Kennedy will take some of his payment in shares. But that still leaves $4.4 billion of cash to find. Of that, 80% will come from a rights offering, the rest by taking net debt up to around twice Aveva’s annual Ebitda.This is very ambitious for a company that has historically had net cash, and whose market value is just 7.4 billion pounds ($9.7 billion) itself.The support of Schneider Electric SE, the 61 billion-euro ($72 billion) French industrial group that owns 60% of Aveva, is hugely helpful. It’s unclear whether Aveva could pull off such a giant equity increase if its ownership was spread among institutional investors. A smaller capital hike, and more debt, might have been possible. But the warm reaction this deal has received might not have been replicated.Contrast this with the fortunes of diagnostics group Siemens Healthineers AG in its $16 billion deal for U.S. radiotherapy group Varian Medical Systems Inc. The near-term outlook for Varian’s business is cloudy and Healthineers’ parent, Siemens AG, is not going to participate in a rights offer for the deal. Instead, it is providing a jumbo bridge loan. The huge equity requirement appears to be weighing on Healthineers’ share price.The backing of a major shareholder clearly helped out in Aveva’s case. But it may not have been essential. Other acquisitive CEOs on the prowl for growth will take heart.This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.For more articles like this, please visit us at now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.