ServiceMax Acquired by PTC

Transaction highlights important lesson for software startups focused on industrials and energy

Last week, PTC, one of the largest CAD firms in the world announced its acquisition of ServiceMax, one of the most prominent field service management tools, for $1.46 billion.

PTC took out a $500 million loan to make the all-cash deal and estimates the acquisition will add $160 million to its total annual recurring revenue (ARR) in Q2 FY 2022 - indicating that the exit valued ServiceMax between 8-10x NTM revenues.

Of note, ServiceMax is built on top of Salesforce and represents an important exit data point for companies based on the Force.com platform.

PTC has partnered with ServiceMax since 2015 as part of its exploration of the service and maintenance industry sector that started in 2011 with the acquisition of 4CS.

PTC’s IoT solutions provide the system of record for a product’s operation in the field. ServiceMax’s field service management portfolio provides the system of record for serviced products. With the addition of ServiceMax’s capabilities, PTC will be the only company that can offer manufacturers a comprehensive view of their products at each stage of the lifecycle. 

The strategy of owning the entire lifecycle makes a lot of sense when you realize that the cost of installing and maintaining infrastructure and hardware can be up to 20 times the cost of the design alone. Design is PTC’s core business.

Energize’s growth investment thesis in Sitetracker was very similar - we believe that the cost to install and maintain critical, sustainable assets such as 5G infrastructure, solar, storage, and EV chargers will continue to rise and require a solution purpose-built for deployment and ongoing lifecycle management.

ServiceMax’s financial history is also an interesting part of this deal as it leads to clues about the multiple paid by PTC.

The company featured prominent investors like Kleiner Perkins and Emergence Capital before being acquired by GE Digital in 2017 for $915 million.

Less than 2 years after being acquired, Silver Lake reached a deal to spin ServiceMax out of GE for an undisclosed amount.

And finally, the company announced its intention to go public via SPAC with Pathfinder Acquisition Corp in July 2021 before ultimately canceling the deal citing market conditions.

Due to that failed SPAC, we have insight into how the company performed over the last 2 years and the promise of the next 2.

The company was forecast to grow between 10-20% annually over this year and next while working toward positive EBITDA margins by FY24 which ends on 1/31/24.

Importantly, these numbers highlight the premium strategic acquirers are still willing to pay for the right asset even in the face of macroeconomic headwinds.

As of 10/31, the multiple for a company of ServiceMax’s profile would have likely been in the 5-6x NTM revenue range or approximately $1-1.25 billion in enterprise value.

This premium and the partnership angle noted above highlight an important lesson for startups in the energy and industrial software segments - your most likely acquirer (and one likely to pay the most) probably comes from your customer set or partnerships.

While some have called for a slowdown in M&A in 2023, this acquisition is the type I believe we’ll see more of over the next 12-24 months.

Publicly traded companies are currently sitting on balance sheets with strong cash positions and legacy industries are looking to modern revenue streams with higher gross margins and growth - this combination creates an environment favorable to selective M&A activity.