By Goran Mijuk
ZURICH—ABB /zigman2/quotes/209404356/composite ABB +2.36% Ltd. on Wednesday agreed to buy software maker Ventyx from U.S. private-equity firm Vista Equity Partners for more than $1 billion in cash, raising hopes that the Swiss engineering giant's first large takeover in more than a decade may trigger fresh merger-and-acquisition activity in the sector.
ABB, which declined to provide a more specific price tag, said the acquisition of U.S.-based Ventyx, which among other things provides software technology to grid operators, will be integrated with the Swiss company's power-systems division.
The unit has been under pressure amid the economic downturn, seeing orders decline more than 20% in the first quarter. But ABB hopes grid operators will start reinvesting fresh funds in electricity networks by using so-called smart-grid software, which allows owners to upgrade and broaden electricity transport.
"The big advantage for energy companies, utilities and industrial customers is that they will now have a single supplier of enterprise-wide information-technology platforms and power-automation systems," said Chief Executive Joe Hogan . "The advantage for our shareholders is a cash-generating acquisition in an exciting growth market, with a strong management team, a highly complementary offering and geographic scope, and an attractive return on capital employed," he said.
Ventyx, which had sales of about $250 million in 2009 and employs about 900 staff world-wide, provides software solutions to energy firms such as nuclear plants or communications companies such as mobile network operators. It also produces asset-management software.
"The deal makes much sense as ABB will improve its footprint in a very attractive growth market," said Richard Frei, analyst at Zuercher Kantonalbank.
Other analysts agreed, saying the acquisition could trigger more M&A in the broader energy sector, which has faced a severe drop in demand in Europe and the U.S. during the recession.
According to research firm Lux Research, the global market for smart-grid software could more than triple over the next five years, reaching a size of $16 billion in annual sales, up from about $4.5 billion currently.
Companies such as Cisco Systems /zigman2/quotes/209509471/composite CSCO -1.53% Inc., Siemens /zigman2/quotes/200873563/delayed DE:SIE -1.45% AG, General Electric /zigman2/quotes/208495069/composite GE +1.10% Co. and International Business Machines /zigman2/quotes/203856914/composite IBM +1.77% Corp. are also active in this market, which has recently received a lifeline after U.S. President Barack Obama said the government would make available fresh funds to support the technology.
Besides attracting funds from U.S. grid operators, European utilities and network operators also are expected to invest heavily. ABB last month entered into a deal with Deutsche Telekom AG to develop a smart grid.
Electricity operators and energy firms are expected to invest more in renewable energy solutions such as solar and wind energy—another market that is expected to grow fast over the next few years. Multibillion-dollar projects such as Desertec, which aims at tapping solar energy in the Sahara desert region and transporting it to Europe, could prove decisive for the industry, analysts say, helping the sector reduce its current dependency on solidly growing markets in Asia.
Wednesday's deal is ABB's first big acquisition in more than a decade. The company pursued big takeovers during the 1990s under the stewardship of Percy Barnevik , who merged Switzerland's Brown Boveri and Sweden's Asea AB in 1988. However, his buying spree included the acquisition of a small U.S.-based firm, Combustion Engineering, that once produced asbestos-insulated boilers. This later led thousands of former workers and clients to file lawsuits against ABB, bringing the company close to bankruptcy in 2002 as it had to pay out more than $2 billion in asbestos-related lawsuits. The company reached a settlement in 2006.
Write to Goran Mijuk at email@example.com