Reid French, departing Intergraph COO, in his prepared remarks during the Intergraph 2010 User Conference in Las Vegas this week, pleaded with the audience to "give the acquisition a chance" even though he said that there will be some "skinned knees and stubbed toes" in the process. I assume he was talking about the potential impact on clients although he might just as well have been speaking about employees. Only time will tell if the new management, Sweden-based Hexagon AB and CEO Ola Rollén, will cut staff or keep the company as simply a wholly owned subsidiary that sees "a world of opportunity," the conference theme, leading to more growth rather than simple cost cutting.
For his part, soon-to-be ex-CEO Halsey Wise transformed an organization seemingly lacking a firm direction into a more opportunity-focused, solution-oriented company. Regardless of whether you agree with his course of action, in seven years Wise took the company private through the private equity market, and then set it up for acquisition. In 2010, Intergraph is predicted to yield $200 million in earnings before interest tax, depreciation and amortization (EBITDA) according to Reuters - a very healthy profit for sure. Hexagon purchased the company for $2.1 billion, a price that's over two times earnings. In this economic climate, that's a significant premium. And, since 2003 when Wise took the reins, Intergraph has delivered revenue represented by a compounded annual growth rate (CAGR) of 7% for its stockholders.
The team of Wise and French, while embracing the core technologies and engineering history of Intergraph, never got caught up in corporate nostalgia and culture. As such, the culture radically changed during their tenure. It would be too simplistic to describe either one as "a numbers guy" only focused on profit and loss. Intergraph is now more interested in solving a client's problem than offering software that only hopes to find a solution. Good engineering does not always find a market. Wise noted many global trends in which Intergraph finds itself right in the middle: global energy crisis, location-enabled intelligence, security and defense.
But Hexagon may look at the world slightly differently. CEO Rollén said, "We need to grow to a certain size, and we will serve you better if we are #1 or #2 in the industry." This has the ring of provocation. The acquisition sets the stage for a global battle between large warring factions in the geospatial arena. Esri will now find itself up against a $2 billion-plus company with its fingers in many aspects of the geospatial market. Most significantly, it pits a close relationship between Esri and ITT VIS for the image processing/GIS market versus companies sharing the same parent, namely Intergraph and ERDAS.
Rollén said he'd had his eye on Intergraph for some time as a potential acquisition target. "We can bring down cost and bring on innovation," said Rollén. But in a press conference, Rollén also said to be wary of thinking of the acquisition purely in terms of the geospatial marketplace. As the person responsible for all units of Hexagon that include precision measurement systems for land surveying and photogrammetry and now with process and power engineering solutions, Rollén is looking at the potential for bringing geospatial technology to many more markets and expanding into areas where Intergraph has been successful including security and asset management.
With Hexagon at the controls and ERDAS in its back pocket, Intergraph is poised to return to a market leading position in geospatial. As I said in a "Directions on the News" podcast when the acquisition was announced, this is not a shot across the bow at Esri; this is a "take aim and shoot" strategy. While Intergraph is strong in European markets and Esri, in North American markets, it is perhaps the Asia Pacific region where sparks will fly. It's a region that represents 20% of Hexagon's revenues. In addition, in what can only be described as a typical incestuous relationship that exists in somewhat smaller industries like geospatial, ERDAS has Joel Campbell, an ex-Esri sales director, at its helm as president, juxtaposed to the founder of ERDAS, Laurie Jordan, who now works for Esri leading its image processing efforts. What were the odds? Perhaps Las Vegas was an apt venue for this year's event.