The Deal
The acquisition of Ventyx (www.ventyx.com) by ABB (www.abb.com) announced on May 5,has the look of a bellwether deal in the energy and environment sector. This all cash deal at $1B, a 4X TTM revenue multiple, is excellent and should inspire other sellers to test the market. This deal will be a reference point for smaller sellers in strategic transactions. It is one of several clear signals that the energy and environment software market is active and good deals can get done.
By coincidence, on the same day, Corum announced that the firm had launched a new focus on serving energy technology companies. The initiative is being lead from the Corum office in Houston. The M&A landscape looks exciting in an energy technology industry in the midst of rapid transition.
Background
Ventyx is an energy services and software developer assembled by Vista Equity Partners, a private equity firm. The company was formed in March 2007 after Vista acquired the utility industry software firm, Indus International, earlier that year and merged the company with its previously acquired MDSI (Mobile Data Solutions, Inc.). Vista reportedly paid $240M for Indus in 2007 and $70M for MDSI in 2005. Both were take-private deals of public companies. The company made a few acquisitions along the way, nMarket Software Business in 2009, TechAssist Inc. in 2008 and NewEnergy Associates in 2007 that rounded out its software and services portfolio. Ventyx now has 900 employees and reported $250M in revenue last year.
ABBs Power Systems Division sells power equipment to utilities and industrial companies. ABB expects this move to triple the size of its presence in the energy management software market. The acquisition significantly improves ABBs position in the area of smart grid and renewable energy network management. The big advantage for energy companies, utilities and industrial customers is that they will now have a single supplier of enterprise-wide information technology platforms and power automation systems, Joe Hogan, ABBs chief executive, said in a statement.
Corum Commentary
This deal, where ABB, a major, international trade buyer is making a bold move to dramatically expand its position, should be regarded as a leading indicator of M&A activity in the sector. This is ABB's first $1B acquisiton in ten years. The 4X TTM revenue multiple and all cash consideration should be inspiration to other sellers in the energy and envrionment sector to test the market now. This deal has tremendous credibility as the benchmark transaction for smaller sellers in strategic transactions. It is also a clear signal that the energy software market is active and good deals can get done. Don't be surprised to see a notable increase in M&A activity, led by trade buyers in the vertical. Remember the roll-up lead by major, international trade buyers IBM, Oracle and SAP that redefined Business Intelligence as a stand-alone sector. Coincidentally, these deals were all done at around a 4X TTM revenue multiple.
A few analysts have commented that the Ventyx/ABB deal looks pricey. However, the backdrop is one where a critical, technology-centric industry is aggressively advancing through a generational change in the technology and practices that manage energy supply, trading, transport and consumption. The areas of load forecasting, smart distribution grids, renewable energy, sustainability and carbon trading are leading the way. If you are skeptical about the strong interest in the energy management software, ask new entrants, Google or Microsoft, about their interest in home energy management.