Well-run companies are always open to potential, even in difficult times, and investors should take encouragement from the computer-aided design (CAD) software suppliers neat little acquisition. True, the £6.5 million purchase of FabTrol won't set the needle dancing on the M&A Richter scale, which explains why the shares have barely moved, at £19.39, but it does represents a clever bit of cherry-picking by £1.2 billion Aveva (AVV).
Fabtrol provides project management/project control software for steel fabrication, and it already interfaces with Aveva's own Bocad structural steel design applications, allowing the company to expand its fabrication portfolio into estimating, material management and production control.
Fabtrol's 1,400 customers are mainly in North America, a key target market for Aveva and one in which it is under-represented. Last year to March less than 18% of Aveva's reported £207.6 million revenues came from the Americas.
'We see two particular opportunities for Aveva,' say analysts at Numis Securities. First, 'cross-selling design tools into FabTrol's larger customers, and two, a product upgrade cycle particularly within the
smaller customers, which should help move more of them onto maintenance.' The broker also sees scope for some integration and cross sales in the other direction, in other words, leveraging FabTrol for Aveva's existing customers.
Among other factors, weakening market conditions have led Aveva down the cost cutting road for much of the past year, and it remains largely in batten down the hatches mode. Oil infrastructure investment is down, big nuclear projects haven put on ice while ship building has been in the relative doldrums for a few years. This perfect storm led to a shock profits warning in September.
But the acquisition of FabTrol highlights that Aveva is still keen to invest where it believes there are opportunities for growth. After all, if a relative large specialist like Aveva is feeling the pinch, so too must a multitude of smaller tools suppliers, which implies plenty of cherry-picking choice.
'This deal feels like a nice move towards creating a one stop shop solution,' says Panmure's George O'Connor today. And if nothing else, shareholders should be encouraged that CEO Richard Longdon and his team are anything but asleep at the wheel.