EDS Sells PLM Solutions Unit

Three private equity firms will pay $2 billion in cash for the well-established business in a healthy market.

Beth Bacheldor, Contributor

March 15, 2004

2 Min Read

In an expected move, EDS said over the weekend it is selling its UGS PLM Solutions unit, which makes product life-cycle-management software designed to help companies manage product development from cradle to grave. EDS is selling the unit for $2.05 billion in cash to a group of three private equity firms: Bain Capital, Silver Lake Partners, and Warburg Pincus.

EDS had prepped its unit for a sale late last year. The company began courting outside investors back in October, and shortly after changed the unit's name from EDS PLM Solutions to UGS PLM Solutions.

EDS will be giving up a well-established business in a healthy market. PLM software, which has its roots in CAD/CAM and has a strong following in the aerospace, defense, and automotive markets, is expected to grow significantly. According to ARC Advisory Group, the market for PLM software and services is expected to grow from $6.3 billion this year to $14.1 billion in 2007. EDS has long been a leader, competing heavily with rival IBM.

But the sale will give EDS, which has struggled in recent years, a good infusion of cash. "The transaction is another tangible step in the strategic plan we laid out for investors in June 2003," said EDS chairman and CEO Mike Jordan in a statement announcing the sale of UGS PLM. Jordan was recruited by the EDS board in March 2003 to lead the company. "We said our ongoing focus will be strengthening our core information technology and business-process-outsourcing operations and our balance sheet. This transaction supports both priorities and further enhances our competitive position," he said.

Upon closing the transaction, EDS expects to be closer to its announced goal of zero net debt (total debt minus cash and marketable securities on hand) by the end of 2004. The deal, pending regulatory conditions, is expected to close in 90 days.

Though EDS had originally sought an initial public offering or private offering of a minority state in its PLM subsidiary, the purchase price--which is about 2.3 times the unit's annual revenue--no doubt swayed the company to sell the entire unit. In 2003, UGS PLM Solutions generated $897 million in revenue and $104 million in net income. UGS PLM Solutions has approximately 5,000 employees.

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