PTC, a Big Four CAD company,[1] and the biggest product lifecycle management (PLM) company by its own reckoning, is now set to become one of the biggest field service management (FSM) software companies after its $1.46 billion acquisition of ServiceMax. PTC took out a $500 million loan to make the all-cash deal with Silver Lake, the investment firm that owns most of ServiceMax.
PTC is estimating that the acquisition will add $160 million in its total annual recurring revenue (ARR) in Q2 FY 2022 to its cash flow.
“The addition of ServiceMax will realize a key part of PTC’s closed-loop PLM strategy,” said Jim Heppelmann, president and CEO, PTC. “The PLM capabilities PTC has long offered to engineering and manufacturing departments provide the system of record for the digital definition of any product configuration. ServiceMax will complement this by providing the system of record for monitoring and servicing product instances after they leave the factory and move into customer use. Upon completion of this acquisition, PTC will have the unique ability to complement the full digital product definition from our CAD and PLM solutions with detailed usage information from our Internet of things (IoT) solutions and the complete service history from ServiceMax.”
Billion-dollar deals are few and far between in our industry—as they are for PTC. This is three times as much as PTC paid for a CAD company ($470 million, Onshape) and twice as much as it paid for a PLM company ($715 million, Arena Solutions).
PTC has a history of crossing industries for acquisitions to diversify and expand its footprint, often surprising industry watchers limited to design, engineering and manufacturing software. Examples include its acquisition of a document management software tool (Arbortext, 2005), mathematics software (Mathsoft, 2006) and AR/VR software (ThingWorx, 2013), to name a few.
But by acquiring ServiceMax, PTC can be seen as extending its coverage of products from their conception (with Creo and Windchill, primarily) to their use. A product that requires more expenditure over its service life than for its design makes an argument for getting into maintenance and repair in one form or another. One study found that the operating and support costs of military fixed-wing aircraft was 9 times the R&D costs to create it. For ground-based systems, helicopters and ships, operating and support costs were 20 times more than their creation costs.
FSM software like ServiceMax works to keep its equipment running by managing field personnel sent to service the equipment who know about the equipment (maintenance schedules, condition, age, condition, etc.). The equipment can be vehicles or fleets of vehicles, process plants, utility infrastructure (energy, water), telecommunication systems, manufacturing facilities, passenger aircraft or railway train systems. FSM software customers are most often companies that provide maintenance on a contract and must manage personnel and hardware inventory so they can provide service to their clients.
The current state of the art in FSM are cloud-based applications that can integrate with a service company’s back-office applications, such as accounting software.
ServiceMax is cloud based and is built on top of Salesforce, the darling and progenitor of cloud-based platforms. The application was originally named Maxplore and existed as just another Salesforce app until it won the Machine Learning Startup prize of $1 million at the 2008 Dreamforce conference. This led to multiple rounds of financing that culminated in its purchase by GE Digital and Silver Lake for $915 million in 2017.
Field service management may be viewed by PTC as a growth market. Unlike CAD and PLM, which are close to saturating the market, FSM software has achieved only 25 percent penetration, according to Gartner.
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, a company with warranty, service and support software. This was immediately followed by its acquisition of Servigistics, which had a suite of lifecycle management applications.
While service organizations can use FSM to make their operations more efficient, implementing PTC’s technologies may take FSM to another level. Equipping service technicians with augmented reality, (AR, PTC’s Vuforia) would replace bulky out-of-date service manuals while delivering a heads-up display of the equipment, instructions and other information at the point where it’s needed. Equipping tools with sensors and connecting them to the Internet (IoT, PTC’s ThingWorx) will allow them to monitor equipment without leaving the office.
If ServiceMax’s dependence on Salesforce is a problem, neither ServiceMax nor PTC are letting on at this time. This is more of a time to assure ServiceMax that it is business as usual. ServiceMax is essentially only an FSM functionality layer over a Salesforce engine. Having its own engine is important to PTC, which has its own geometry kernel (Granite) rather than licenseing one from another company. Depending on an engine built by another company could leave PTC vulnerable in the future if Salesforce were ever to deem PTC a competitive threat, encroaching on its customer relationship management (CRM) dominance, and cut them off. We can’t help but wonder if there is a long-term plan to have ServiceMax adopt an Arena-based database. Arena Solutions, a PLM company PTC acquired, is cloud based and seems capable of being used as a CRM. Ripping out one engine and installing another is not for the faint of heart and certainly would be unsettling to some ServiceMax customers, but the additional revenue and growth for PTC would be substantial. There would be PTC, not charging ServiceMax customers a penny more than it paid Salesforce.
[1] Big Four CAD companies are Autodesk, Dassault Systèmes, PTC and Siemens.