On August 8, PTC announced it has signed a definitive agreement to acquire Servigistics, Inc., a privately held vendor of service lifecycle management (SLM) software applications, for $220 million in cash.
Although it has a good name recognition in the service management market, Atlanta based Servigistics had struggled in the highly fragmented SLM space. The company has approximately $80 million in revenue, with a single digit profit margin.
The Servigistics software portfolio includes service parts planning, management and pricing, field service management, returns and repair management, and service knowledge management, offered through a mixed and overlapping set of tools and platforms - the outcome of a buying spree that was never fully rationalized. Most recently it had acquired service parts management software company MCA Solutions, which itself had merged with Xelus and Click Commerce.
IDC Manufacturing Insights research shows the aftermarket gaining momentum as a strategic capability for product companies, and many are making investments in tools and process enhancements to gain a competitive advantage through enhanced service capabilities. PTC's CEO Jim Heppelmann is very bullish on this market and is targeting it as an important growth opportunity for his company. Over the last several years, PTC has made a number of acquisitions to augment its SLM portfolio, including Arbortext, Relex, and, most recently, 4CS.
The acquisition of Servigistics will not only add important functionality to PTC's product portfolio, but also contributes a strong brand and domain knowledge in areas where PTC needs faster growth. As importantly, it will help PTC protect the investment it has made in 4CS by eliminating a direct competitor and gaining new customers.
PTC views PLM as a continuum extending from concept design to sourcing and aftermarket service - a concept that IDC Manufacturing Insights terms Product Lifecycle Economics. With strong capabilities in both the early design phases and in aftermarket service, PTC can capitalize on opportunities to sell SLM within exiting Windchill accounts, as well as develop aftermarket service-centered accounts into broader enterprise PLM accounts. Servigistics currently has a base of nearly 500 customers, most of whom are in the U.S. There is modest overlap with the existing PTC customer roster (about 50%) so the sales teams have some fresh names to pursue.
PTC is demonstrating a very deliberate and pragmatic strategy to capture the aftermarket opportunity (a Manufacturing Insights analyst suggested that the 'P' in PTC should stand for 'pragmatic'). The company is further ahead in the SLM space than other PLM vendors, and it intends to compete with ERP companies that have a similar offering, but are not as integrated with the PLM capabilities.
Nevertheless, PTC needs to address a few questions and potential hurdles.
Not only does Servigistics' product portfolio include a significant functional overlap with that of PTC's 4CS, but it is, in itself, a collection of capabilities and tools created opportunistically through past acquisitions that were never rationalized into a cohesive product suite. PTC will have to undertake an effort to rationalize its expanded product portfolio, which now includes the assets from four acquired companies (Arbortext, Relex, 4CS and Servigistics), and a myriad of related, if not overlapping, capabilities and business process workflow scenarios. The necessary engineering and integration work to incorporate these capabilities under the Windchill umbrella will no doubt take a while and we expect customers to seek further clarity concerning this roadmap. In the interim, as well as a long term strategy, PTC should develop strong service centric IT implementation relationships.
An interesting wildcard in the Servigistics basket of products and technologies is Kaidar: a knowledge management company Servigistics acquired in 2010. Kaidara's roots are in the complex discrete manufacturing industries, which could serve PTC's customers well. However, Kaidara has changed leadership and ownership several times before it ended up with Servigistics, a journey that has diluted their expertise in delivering effective service knowledge management solutions. PTC will have to decide if it wants to invest in reinvigorating this complex and services-heavy space.
PTC's Windchill users will have more offerings and support from PTC to implement an SLM strategy, extending and reusing product information to improve service operations. As we mentioned earlier, they should make sure PTC defines a roadmap for portfolio rationalizations and process integration soon.
Servigistics users, which include MCA Solutions and users of older legacy systems, will certainly benefit from knowing that their investment is protected, at least in the short term. Going forward, they may find it useful to plan a migration to PTC's mainstream portfolio and take advantage of the ability to connect SLM to PLM under the unified Windchill umbrella.