Invensys acquisition: “Now, it is up to how well we execute.”

Craig Resnick of Arc says “Schneider Electric acquisition of Invensys creates value for automation market”

Schneider Electric announced the completion of its acquisition of Invensys on January 17, 2014. The acquisition of the €2.18billion ($3 billion) software, automation, and controls company will enhance Schneider Electric’s position as a solutions integrator, especially for automation in the process and power generation industries.

schinvThe merger should create synergies between the two companies’ software for energy automation, industrial automation, and process automation, while also providing a wider service base for its customers as the combined company will be able to reach more market segments throughout the world due to the minimal overlap of markets and customer base. Jean-Pascal Tricoire, Chairman and CEO of Schneider Electric, and Clemens Blum, Executive Vice-President of the Industry business unit both commented on the complementary technologies and capabilities of both companies and the potential value to their customers worldwide.

At their recent Orlando Industry Forum in Orlando (FL USA), ARC Advisory Group met jointly with leaders of both firms. Just weeks after beginning to collaborate, both firms talked about their high degree of cultural match, and voiced optimism for the merger as a growth deal, rather than acquisition of an installed base.

While clearly stating that Invensys developments and operations will continue, there are strong areas of shared knowledge that ARC expects to benefit both companies.

  • How will this translate to plant owner/operators, especially those who have been using Invensys products for many years?
  • How well will their investments be protected?
  • How will Schneider Electric position and use these products going forward?

Invensys’ large client base will need to hear specific and unequivocal answers to these questions before moving forward and extending their commitments to the newly merged organization.

The firms have been making joint calls on key customers and, according to company executives; a more detailed integration roadmap will be developed via a “transparent, thoughtful, and deliberate process.” While the merger now elevates Schneider Electric to the top rank of the automation business, as company executives acknowledged, “Now, it is up to how well we execute.”

Strategic Fit to Drive Higher Growth and Value Creation
From Schneider Electric’s perspective, the Invensys acquisition augments its business in industry and infrastructure by boosting its positions in key process segments and strengthening its software for operational efficiency. The company cites that industrial automation is a strategic and attractive business for the firm. As a global specialist in energy management, the solutions of the Schneider Electric Industry business unit are a key part of its portfolio. The Invensys assets help the company better address owner/operators’ challenges relative to productivity, input costs management, workforce scarcity, wage and raw material inflation, complexity of production constraints, and sustainable development.

Integrate Power and Automation
Owner/operators today seek solutions that converge previously separate domains, such as power and automation. This was a prime reason Schneider Electric went forward with this acquisition. Energy management in electro-intensive industries requires deeper architectural integration. Software is critical to converge IT and operational technologies to enable operational efficiency. Convergence involves integrating:

  • Business systems, such as customer management, order management, supply chain management, and document management
  • Operations management, such as production management, quality compliance, asset utilization, process analytics and decision support
  • Control and supervision, such as production automation systems, and interfaces for operators (HMI); and finally
  • Design and simulation, such as supply chain planning, process design, and simulation

What Invensys Brings to the Table
Invensys is a global automation player with large installed base and a major software presence. The company has strong credibility with end users in the refining, chemical, power, pharmaceutical, and food & beverage industries. The company has a strong software business, with particular strengths in HMI/plant intelligence, simulation, optimization, and asset management. It brings major brands in process automation and safety and global reach in process automation, safety, and instrumentation systems via its Foxboro, and Triconex brands. The Eurotherm brand adds temperature and process controllers.

In industrial software, Invensys is a major supplier, including design, simulation, optimization, operations management, and asset management via its Wonderware, SimSci, and Avantis brands. Except for parts of the Wonderware portfolio, these brands will fill obvious gaps in Schneider Electric’s process offering.

Invensys’ Market Position
With Invensys, Schneider Electric becomes a leader in process safety via Triconex process safety and critical control systems. Schneider Electric gets a DCS offering with a large installed base via Foxboro, which has significant brownfield expansion potential. Schneider Electric can expand this potential with its own portfolio of low and medium voltage drives, motor control, and smart infrastructure intelligence. The company also gains domain expertise and execution capabilities in key segments, including refining, petrochemicals and power generation. Schneider Electric will no longer be viewed largely as a strong factory automation company. With Invensys, it clearly becomes a strong process automation company as well.

Even more to the point, the combined software and product portfolio will provide a far more complete suite of converged automation and power solutions.

Conclusion
From ARC’s perspective, Schneider Electric’s acquisition of Invensys will be a positive development for owner/operators. Owner/operators would not have been as well served had Invensys been bought by a direct competitor focused more on its installed base, which would have introduced significant product redundancies and might well require expensive and painful migration.

Also, some owner/operators were uncertain of the long term prospects for Invensys remaining independent. That uncertainty can now go away. Schneider Electric has a strong balance sheet, a long-term commitment to industrial automation, and a very good track record with industrial acquisitions. The joint entity is also in an excellent position to supply the converged solutions in areas such as power and automation that many of today owner/operators seek.

Owner/operators, however, will want to see action and proof points to see how well this acquisition is being executed and how well the firm integrates its platforms to exploit obvious synergies.

ARC recommends that owner/operators should actively participate in the company’s upcoming customer conferences, looking for both continuity and a combined vision showing solutions that leverage both Invensys’ process solutions and Schneider Electric’s power and energy management solutions.

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