Hexagon: Software business acquisition complements offering to industrial customers

The acquisition of Geomagic engineering software business complements Hexagon’s current offering in the Manufacturing Intelligence division. The deal is in line with the company’s long-standing strategy to expand its solution range in high-margin areas beyond hardware. The size of the acquired business is relatively small, but we find the deal valuation rather attractive relative to earnings.

A bolt-on software acquisition

Hexagon announced on Thursday that it is acquiring Geomagic software business from 3D Systems. The acquisition complements the group’s largest division Manufacturing Intelligence (MI), which serves industrial customers improving their production and engineering efficiency with different hardware and software solutions. Geomagic had sales of 28 MEUR and operating margins accretive to the MI division (MI’s adjusted EBIT was 26.4% in 2023). The acquired business’ revenue corresponds to 1.4% of the MI division and 0.5% of group sales in 2023, implying that the expected impact on growth estimates will be relatively small. The acquisition is expected to take place in early Q2’25. We will include it in our estimates in our Q4 update at the latest.

Acquired software tools complement existing business

The acquired software solutions complement the MI division’s metrology offering and allow Hexagon to provide increasingly user-friendly solutions to its customers. The Geomagic suite is, e.g., capable of automating the processing of 3D scan data to build digital models from physical objects. We, therefore, see the acquisition as vertical integration enabling a more comprehensive offering beyond the hardware used to produce the 3D data. The acquisition is synergistic with the existing offering and in line with the company’s ambition to strengthen its capabilities in software sales.

We find the valuation of the deal rather attractive

We find the debt and cash-free (EV) purchase price of 117 MEUR to be rather attractive compared to the assumed EBIT of around 8 MEUR (assuming a 30% EBIT margin). Assumed profitability would imply an EV/EBIT multiple of around 14x that falls below Hexagon’s current trading multiple of 18x. Future growth synergies could enable further value creation even if the company did not disclose the expected synergy potential in numbers.