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Geometric Software’s latest acquisition – Our view - Views on News from Equitymaster
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  • Jun 15, 2007 - Geometric Software’s latest acquisition – Our view

Geometric Software’s latest acquisition – Our view
Jun 15, 2007

Geometric Software Solutions (GSS) recently acquired both intellectual property and all the existing contracts of PLM adapters from MeritSpring Technologies AG of Switzerland. In this article we take a look at how these acquisition will help GSS to further consolidate its leadership in the PLM industry About Geometric Software Solutions
GSS operates in the highly niche area of providing product lifecycle management (PLM) technologies and solutions to the global mechanical design, manufacturing, hi-tech and industrial markets. The company’s presence in the domain of geometry provides it with a competitive advantage in the form of high entry barriers on account of high-levels of technical skill-set requirements. In 2006, the company acquired Modern Engineering, which has a predominant position in the engineering space to cater to the widely unpenetrated engineering market.

About MeritSpring Technologies AG
MeritSpring Technologies AG is a software solutions provider, serving the world's leading manufacturers. The company excels as a component based Integrator - filling the gap between software platform providers and customer needs by providing quality & swift solution. Its main products are speeding up the product development through integrating PDM applications across the value chain.

Why this acquisition?
MeritSpring Technologies has been in the PLM space but of late, the company was experiencing difficulty in taking it forward and GSS saw this as an opportunity to expand its current portfolio of products.

What’s in the deal for GSS?
GSS provides PLM solutions through its Enterprise Products division. The company expects good traction in these solutions as these are being increasingly sought by industries that seek to drive greater efficiencies through information and process integration in the product realisation value chain.

The total cost of acquisition is US$ 0.5 m. The adapters, which GSS have acquired, are currently being used extensively in aerospace and other engineering industries. The acquisition includes transferring both Intellectual Property (IP) and all existing related contracts to GSS. By transferring of existing contracts, we mean to say that in next year, when these customers look for maintenance they will come to GSS. These adapters namely 'Teamcenter Adapter’ and ‘Windchill Adapter’ will enable GSS to broaden its offering in the PLM space, as they directly address a large portion of the PLM market. It also provides GSS with a foundation for the creation of solutions in the Service Oriented Architecture (SOA) space.

The addition of these adapters will help GSS to accelerate the creation of innovative solutions and significantly expand the markets that it currently addresses. With these acquisitions, GSS can now offer a range of solutions to suit customer requirements while allowing them to leverage their existing infrastructure.

Secondly, MeritSpring Technologies have 10 large customers in the aerospace where GSS presence is not predominant. This acquisition will help GSS to renew its contract with these large customers in the coming years and will also enable it to sell extra licenses and to cross sell GSS’s existing products.

Thirdly, if GSS had not acquired these adapters, then they would have had to develop it in house, thus leading to longer lead-time. By acquiring the adapters, GSS saved its time to market by atleast 12 months. In other words, what GSS would have been doing in FY09 they can start doing it from FY08 onwards.

Conclusion
While the acquisition of adapters is a big plus for the company and will enable it to expand its offerings in the PLM suite, the scalability is one area where we have concerns, especially, given its volatile past. The stock is currently trading at 9.3 times our FY09 estimates and we continue to remain positive on the stock from a long-term perspective. Software GMSO, IINFO, MIND, BFL

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