Seaport software company PTC expands reach with $1.5 billion deal

Boston software company PTC has its roots in computer-aided design applications that help companies engineer everything from automobiles to wind turbines to spacesuits, even the National Ignition Facility that just reported a major breakthrough in fusion energy.

But once a product’s detailed specifications exist in digital form, there’s a lot more that can be done. PTC chief executive Jim Heppelmann has spent the past dozen years buying smaller companies to extend the usefulness of digital designs into manufacturing, management, and maintenance.

This week, Heppelmann completed his largest deal yet, paying almost $1.5 billion for ServiceMax, a company that will stretch the use of digital designs even further. ServiceMax uses digital records of products to help companies develop maintenance plans and dispatch service technicians.

In an interview, Heppelmann described his vision for creating a “digital thread” that starts with a product’s design, assists with manufacturing, monitors performance, and triggers maintenance calls. ServiceMax, in essence, extends the thread even farther, helping service companies send the correct technicians equipped with the right gear.

“Service for complex products requires a great deal of information about the product and a great deal of information about the customer,” Heppelmann said. “Now we’ve married that together.”

Analysts have favored the move, which was first announced back in November. “PTC has been talking about this vision of a digital thread for some time, connecting all aspects of the product lifecycle,” said Adam Borg, an analyst at Stifel Financial. “But there was, candidly, a hole in that vision from the service side, serving a physical asset. And ServiceMax fills that hole.”

PTC competes with larger companies including SAP and Dassault but none had as complete an offering for using digital designs — even before the ServiceMax acquisition, Borg said.

“No one else really had this,” he said. “And then when you add service lifecycle management on top of that, competitors have aspects of this but not soup-to-nuts.”

ServiceMax had a winding journey, being bought by GE in 2016, then sold in 2019, and trying and failing to go public last year. PTC was actually an early investor in the company in 2015 and Heppelmann was already thinking of an acquisition back then.

“GE beat us to the punch and acquired them,” he said. “Then afterward, the business spun back out of GE and renewed our interest in completing the deal.”

PTC is paying for the acquisition in two parts — $808 million now and $650 million in October — partly with borrowed funds. But the cash flow from ServiceMax will more than cover the additional debt service, PTC has said.

While some faster-growing software companies have seen business slip amid rising inflation and higher interest rates, PTC has continued to report slow and steady growth with improving cash flow.

Sales rose 7 percent to $1.9 billion in PTC’s fiscal year ended September 30 and free cash flow increased 21 percent to $416 million. in a year when most tech stocks plummeted, PTC’s share price was steady, actually gaining 1 percent over the past 12 months.

“We’re acting from a position of strength, in a tough market, but our company is performing well,” Heppelmann said.

Aaron Pressman can be reached at [email protected]. Follow him on Twitter @ampressman.

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