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PTC Inc (PTC) Announces Buyout of Arena Solutions for $715M

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PTC Inc. PTC announced the buyout of Arena Solutions, Inc. to capture a larger share of the software as a service (SaaS)-based product development market, especially among midmarket customers.

Headquartered in Foster City, CA, Arena Solutions is a privately-held company that specializes in providing cloud-based SaaS product lifecycle management (PLM) applications solutions and product-centric quality management system (QMS) solutions.

Arena Solutions’ SaaS offerings enable customers to optimize product development process as well as improve supply-chain relationship and augment closed-loop quality processes. The company has more than 1,200 customers across verticals like medical device industries, high and electronics. 

The acquisition of Arena Solutions will be accretive to PTC’s financials beginning from fiscal 2022 and beyond. However, PTC added that the transaction will not contribute to its cash flow from operations and free cash flow targets for fiscal 2021. The company expects to report $365 million as cash flow from operations  and $340 million as free cash flow for fiscal 2021.

PTC Inc. Price and Consensus


PTC Inc. Price and Consensus
PTC Inc. Price and Consensus

PTC Inc. price-consensus-chart | PTC Inc. Quote


PTC added that Arena Solutions is expected to register a double-digit year-over-year growth in annualized recurring revenues (ARR) and reach $50 million for 2020.

PTC will pay $715 million for the acquisition of Arena Solutions, which will be funded by utilizing cash in hand and the amount available under the existing credit facility. The buyout, subject to regulatory and customary conditions, is slated for closure in the company’s second quarter of fiscal 2021.

PTC added that it will divulge more details about the transaction at its upcoming Investor Day virtual meeting to be held on Dec 15, 2020.

Arena Acquisition to Boost Presence in SaaS based PLM Market

Per a Grand View Research report, the PLM market is expected to witness a CAGR of 6.2% between 2020 and 2025. PLM refers to efficient management of information throughout the product lifecycle on real-time basis, while offering cost savings and improving time to market for new products, added the report.

PTC noted that the COVID-19 crisis has accelerated the adoption of SaaS-based solutions. Citing PTC customer surveys, the company further added that there is a 25% increase in readiness for adoption of SaaS-oriented PLM solutions since the beginning of COVID-19 crisis.

Arena Solutions’ buyout will assist PTC in providing its customers with a comprehensive SaaS solutions that encompasses both computer-aided design (CAD) and PLM offerings. Arena Solutions’ buyout will complement PTC’s earlier acquisition of Onshape.

In October 2019, PTC acquired Onshape for $470 million (net of cash acquired) to augment its Creo and Windchill products with improved SaaS capabilities. Creo is PTC’s flagship 3D CAD product, while Windchill software is the company’s important PLM product.

Headwinds Remain

PTC is bearing the brunt of macroeconomic weakness induced by the coronavirus crisis. The sluggish IT spend among small- and medium-sized businesses (SMBs) owing to coronavirus-triggered macroeconomic weakness is likely to negatively impact the demand for its offerings, at least in the near term.

Given the alluring revenue potential, the competition in the PLM market is intensifying and it is a concern for PTC. Some of the well-known players in the PLM space include Autodesk ADSK, Oracle ORCL, and SAP SE SAP.

Currently, PTC caries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank stocks here.

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