ABB will integrate Ventyx into its power-systems division, allowing it to provide modern smart grid software to grid operators who want to run a more efficient distribution system. The deal represents electrical engineering companies' need to prepare energy management networks to handle an increasing supply of renewable sources, like wind and solar.
"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 ABB Chief Executive Officer 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."
ABB has been hoarding cash, boasting a $7.1 billion pile at first-quarter's end. The deal is the company's first billion-dollar buy in over 10 years and will strengthen its North American presence.
Atlanta-based Ventyx is owned by U.S. private equity firm Vista Equity Partners and has a broad U.S. customer base. Ventyx employs 900 people in over 40 countries and hit about $250 million in 2009 sales.
Ventyx is expected to grow 5%-9% in 2010 and more than 12% in 2011, according to Hogan, making it a highly attractive acquisition candidate. Its growth pace matches ABB's, which is aiming for a 9%-12% sales increase by 2012.
"The company should fit well with ABB's power systems offering and appears very complementary. Ventyx addresses some key growth areas in network management, smart grids, renewables, etc," Kepler Capital Markets analyst Roger Steiner told Reuters.
The acquisition triples the energy management software market available to ABB.
"The deal makes much sense as ABB will improve its footprint in a very attractive growth market," Richard Frei, analyst at Zuercher Kantonalbank, told The Wall Street Journal.
Smart Grid Software a Must-Have
Acquiring smart grid software allows electrical engineering companies to supply their customers with necessary equipment and management technology, creating a one-stop shop.
Smart grid software offers two significant benefits to modernizing electricity networks: It gives distribution grids the ability to handle multi-directional power flows, and it monitors key statistics on electricity usage.
Electricity is traditionally transmitted from the power station to the customer, but with the addition of renewable energy sources power will enter the network from more than one location. Smart grids allow renewables to be integrated into the electricity network.
Smart grids also keep track of electricity demand, pricing, and availability in real-time, which will offer energy companies information on how to improve grid efficiency.
"The richness of the information you get starts to explode" once it's monitored, Microsoft Corp. (MSFT: 29.85 0.00 0.00%) managing director Jon Arnold told The Journal.
The global market for smart grid software could more than triple over the next 5 years to $16 billion in annual sales, according to Lux Research.
Analysts see the deal triggering more merger & acquisition activity in the energy sector. Global engineering companies like General Electric Co. (GE: 18.10 0.00 0.00%) and German-based Siemens AG (SI: 90.63 0.00 0.00%) have already been attracted to the smart grid market.
Siemens announced earlier this year a goal to double its current growth rate in the smart grid market and snag $8.48 billion (6 billion euros) in business over the next 5 years.
U.S. energy companies got a boost from President Barack Obama in October 2009 when he offered a $3.4 billion stimulus package for electricity grid projects. Duke Energy Corp. (DUK: 16.76 0.00 0.00%) received a $200 million cut to modernize its grid technology.
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