Siemens Near Deal To Acquire UGS For $3.5 Billion

The Plano, Texas-based company was reportedly gearing up for an IPO later this year, but many expected the company would first sell to one of its larger competitors or complementary software vendors, such as Oracle or IBM. The company is currently owned by three private equity companies -- Bain Capital, Silver Lake Partners and Warburg Pincus.

UGS, a former subsidiary of EDS, launched a midmarket channel program last year and has been recruiting more VARs to expand its reach beyond its traditional CAD markets. The company reported a 30 percent increase in its channel revenue in 2006. UGS primarily competes against Dassault, PTC, Autodesk and VISC Software. It has strategic relationships with Oracle, IBM and Adobe.

Neither Siemens nor UGS were available for comment. UGS solution providers, however, are reacting positively to the news.

"It's a little bit of a surprise because it's not a traditional company in this space," says Andreas Lindenthal, principal of MetaFore.

But Siemens is not an unlikely suitor for UGS. The German conglomerate's has specialty services in integrating ERP, CRM, supply-chain management and business information management. Siemens has also invested heavily in factory automation technology. PLM complements ERP and supply-chain management nicely, and is actually the anchor of a holistic business intelligence suite. And, when UGS was a still part of EDS, Siemens was a major integrator of Metaphase, the predecessor to UGS' flagship product, TeamCenter.

"Had UGS been acquired by a very strong software sales channel, like Microsoft or SAP, then it may have been a little problematic," Lindenthal says. "In this case, Siemens doesn't have a strong software business, so they must have bought UGS to expand their business."

PLM, a market being championed by UGS, is still emerging and has tremendous potential. It's currently a $16 billion market globally, with expectations to increase many fold as more small enterprise and midmarket customers adopt PLM applications that create efficiencies in manufacturing development and processes. However, none of the PLM leaders hold more than 20 percent of the total market; UGS and Dassault each hold 17 percent share and PTC 7 percent, according to Datatech. The bulk of the market -- 44 percent -- is held by a plethora of tertiary players.