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Acquisition Changes Product Lifecycle Management Landscape

Written By: Michael Bittner
Published On: March 27 2006

Background

Given its size as the largest product lifecycle management (PLM) vendor worldwide and its status as a major force in Europe for 3D computer-assisted design (3D CAD) as well as PLM, Dassault Systmes does not seem to garner North American media/analyst attention and respect equivalent to its global position. From a marketing perspective, it is one of those situations where the sum of the parts does not necessarily equal the whole. One clear reason for this is the fact that the Americas represent only 30 percent of the company's total revenues for fiscal year 2005, while Asia represents 23 percent, and Europe represents 47 percent. Additionally, most of the competition, including second-ranked UGS, as well as Agile, Arena, MatrixOne, and PTC, are all US-based software companies, and thus capture headlines more frequently.

This is all about to change, however, as Dassault Systmes made a major splash with its recently announced $408 million (USD) cash acquisition of MatrixOne, a leading provider of collaborative PLM solutions for an impressive clientele. The deal has been approved by both companies' boards of directors, and will not only expand Dassault Systmes' lead in PLM revenues, but will also bring it closer to the forefront as a North American force in the CAD and PLM markets.

Dassault Systmes' Performance Exemplary of PLM Market

For fiscal year 2005, Dassault Systmes' strong growth across the software and services sectors, along with core margin improvement, drove fourth quarter and full-year financial performance:

  • Total revenue for 2005 was $1.2 billion (USD), up 17 percent on generally accepted accounting principles (GAAP), and up 18 percent on a non-GAAP basis; growth in the Americas was a whopping 24 percent.
  • Earnings per share (EPS) in 2005 were up 10 percent on GAAP, and up 17 percent on a non-GAAP basis.
  • Dassault Systmes extended its PLM market leadership with a further market share gain of 1 percent in 2005, based on estimates by Daratech, Inc.
  • Over the 2001-2005 period, Dassault Systmes added eight percentage points to its market share, according to Daratech, Inc.
  • The ratio of total revenues in the Americas inched up a few percentage points over the past two years, but until now there was no clear sign of an imminent quantum leap in revenue growth in this region.

Meanwhile, IBM and Dassault Systmes continue to strengthen their partnership to maximize the value of PLM software and services. Of particular interest are their efforts since July 2005 to assist the transition of small and mid-sized customers from clusters of CAD users to full PLM implementations. For some time IBM has been Dassault Systmes' major channel for sales and service in the Americas. This relationship is considered a success, and has evolved over time into a partnership which inspires confidence in clients and prospects.

Dassault Systmes' product suite is comprehensive, but sometimes seen as complex and confusing, given product name similarities. In 2005 the software vendor made strides to leverage the competitive advantages of each brand:

Catia: collaborative digital product development

Simulia (a result of the ABAQUS acquisition): finite element analysis software for realistic 3D simulation

Delmia: digital development of factory and manufacturing processes linked to product design

Enovia: a global collaborative PLM environment, with a single desktop for designers

Smarteam: enterprise team product data management (PDM) with lifecycle management, collaboration, enterprise integration, and decision support

SolidWorks: value-priced 3D mechanical design systems software

Dassault Systmes' Version 5, Release 16 (V5R16) of its PLM portfolio, released in November 2005, was directed squarely at empowering innovation networks, with capabilities aimed at optimizing business processes and streamlining engineering-to-manufacturing cycles. This lineup of brands was assembled both through internal development and acquisition, so merging applications is nothing new to Dassault.

MatrixOne Acquisition Should Change Media Perspective

MatrixOne has a suite of collaborative PLM software and services for medium-to-large organizations, including companies from the high-tech, consumer product, and medical device industries. While profitability has been elusive of late, the company reported $124 million (USD) in total revenues for the fiscal year ending July 2, 2005. Its installed base of more than 850 companies includes Alcatel, Celestica, GAP, General Electric, IBM, Intel, Johnson and Johnson, Nokia, Philips, Qualcomm, Sony Ericsson, Staples, and Toshiba. A recent discussion with one of the executives responsible for the Staples Matrix10 implementation project revealed that a key factor in the office supply company's choice of MatrixOne was the flexibility of product components for evolving business requirements and changing business processes. This represents a strong and credible testament to the PLM solution. MatrixOne has always received high marks for its process-modeling solution, which has the potential to boost Dassault's collaborative business process capabilities over time. Dassault Systmes CEO Bernard Charles believes the acquisition of MatrixOne will extend the company's reach to an audience across a broader range of industries, such as apparel, consumer packaged goods (CPG), and high tech. This may in fact become the case, especially in the Americas.

Challenges Exist, Much Work Remains to be Done

Significant challenges remain to be addressed in order for the benefits of this merger to come to fruition. The most notable challenges will be rationalization of the product suites, research and development (R&D) unification, MatrixOne product service continuity, as well as rationalization of organizational structures. Merging organizations is never easy, and an awkward "who's-responsible-for-what" period inevitably results, at the executive levels, within product marketing, and with the transition of joint product development plans. As for R&D synergy, Dassault Systmes argued that it has a two-year development plan, and that there will be only a limited impact on this plan. A timeline for rationalization was not delineated, nor were specifics of organizational challenges, such as the merger of numerous channel partnerships (MatrixOne has fifty-four active partners) developed by both companies across common territories and coverage areas. One thing that is clear is that IBM's role in selling and servicing the joint solutions portfolio will likely increase over time.

Summary

While perhaps not the first PLM software vendor to jump to mind in North America, Dassault Systmes is a significant force in the PLM market, and warrants more scrutiny by the industry analyst community. Prospects for product lifecycle management software likewise warrant a close look. With the acquisition of MatrixOne, enhanced scrutiny is likely to be the case. But first the focus needs to be placed on the ongoing organizational rationalization of two companies with different business cultures. How dramatically the MatrixOne organizational structures and internal business culture change over time, and how MatrixOne employees react to the acquisition and resulting organizational changes, will be telling. Gartner is already hedging any speculation on the part of Dassault Systmes that the joined entities will catapult them into the leader's quadrant. There is far too much work to be done. From a product technology perspective, R&D synergy can be elusive in technology mergers of this kind, and success requires balance and trade-offs. Data synchronization of the three PDM variants (Enovia, Smarteam, and MatrixOne) can be a chore, and should also be watched with interest. As timelines for product rationalization are developed, new prospects will have some difficult choices, but in the long term, the potential of a joined product suite is considerable.

 
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