Schneider Electric's revived talks with U.K. software maker Aveva lasted about as long as a celebrity marriage. But like celebrities, neither will likely stay single for long.
Schneider was seeking a reverse merger, in which the $36 billion maker of power equipment would contribute its industrial-technology operations and a chunk of cash to Aveva in exchange for a majority stake in the resulting combined company. The move was surprising considering the two companies had called off negotiations on essentially this exact proposal just six months earlier. And the result was the same -- on Wednesday, less than two days after the latest talks were disclosed, Aveva said they were over.
It's not that the strategic logic isn't sound: Aveva needs to diversify beyond providing engineering software for oil and gas projects, and Schneider needs to add more software to stay competitive in an industry where rivals are in a major push to use technology to their advantage. But a deal would be complicated and there are integration challenges, including the fact that the cost of disentangling Schneider's software operations from the rest of the French company might easily wipe out a good portion of any cost and revenue synergies. This is a sticking point for Aveva.
So why would Schneider bother trying again? For one, Aveva has gotten cheaper. Its average stock price in the days before the new talks with Schneider were disclosed was about 11 percent lower than when the French company originally approached the software maker back in July 2015.
Aveva's results for the six months ended March 31 missed analysts' estimates, according to data compiled by Bloomberg, as the oil and gas downturn continued to pressure results. The outlook for that part of its business has since gotten better as crude prices have rebounded, but the energy industry isn't going back to the boom times any time soon. And Aveva's efforts to expand into other industries like food and beverage will take time to yield major benefits.
So long as Aveva's shares continue to be pressured by revenue concerns -- not to mention worries about Brexit and the accompanying drop in the pound -- what reason does Schneider have to offer an extra incentive? If anything, Schneider could be justified in offering less than the 550 million pound ($780 million) cash sweetener it had originally proposed.
At some point in the future, energy markets may stabilize enough to make the deal worth revisiting a third time on different terms. Or Aveva may realize that going it alone has run its course and decide to give a deal with Schneider another shot. But the software maker isn't without other M&A options.
The most logical alternative suitor for Aveva is Siemens, which uses Aveva's 3D software for designing manufacturing plants but is also a competitor to the company through its own technology efforts. Other industrial companies could also be tempted, including Honeywell, ABB and Emerson -- the last of which previously tried to acquire industrial technology and automation company Invensys before Schneider purchased it in 2014.
Schneider may find substitute partners as well, though it will have to be willing to write a bigger check. Aveva's peers include companies as big as Autodesk and Hexagon (both valued at about $13 billion) or Dassault Systemes (valued at about $19 billion), according to Bloomberg Intelligence's Jawahar Hingorani. Rivals such as Aspen Technology, Mentor Graphics and PTC are on the smaller side with market caps of less than $5 billion and could be attractive to Schneider.
Schneider's investors, at least, don't seem to be concerned that an Aveva deal didn't work out. The shares dropped the two days the merger talks appeared to be on, only to climb the most since April on Wednesday when they were officially called off. If the fling is over for now, so be it.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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