Schneider Electric to buy US software firm PTC in $22.6 billion deal

France's Schneider Electric struck its biggest deal ever ⁠on Monday, ⁠agreeing to buy US software company PTC for around $22.6 billion as it builds up its data centre business amid booming demand.

However, the French engineering company's shares fell nearly 10% in early Paris trading as investors weighed the size of the acquisition, the big premium offered for ‌the shares and the outlook for software companies' valuations amid AI-related ‌market ‌uncertainty.

Up to Friday's close, Schneider's shares were up 29% year-to-date, before ‌Monday's losses wiped off close to €15 billion ($17 billion) from its market capitalisation.

"AI ⁠disruption fears are still weighing on software valuations, which allows acquiring PTC at a decade low valuation but could still weigh on Schneider post deal," Jefferies said in a note to investors.

Berenberg analyst Nay Soe Naing told Reuters the deal presented a healthy valuation amid a ​compressed valuation environment and challenging investor sentiment across the software space.

PTC shares jumped 34.4% in US premarket trading.

BACKBONE OF DATA CENTRE BUILD-UP

Schneider, once known primarily for industrial ⁠components like fuses and circuit breakers, now builds the backbone of data centres, supplying everything from cooling units and server racks to critical power distribution equipment.

The PTC acquisition would expand its industrial software and AI business by adding the Boston-based company's product-design and lifecycle-management software to its offering.

Schneider CEO Olivier Blum told investors that PTC's engineering and design data would strengthen Schneider's ability to deploy AI across customers' industrial operations.

"Data is becoming a very critical layer" for extracting value from AI, as the technology requires closer links between data and the software used to contextualise it, Blum ​said in the conference call.

The combination would lift Schneider's software-as-a-service ⁠revenue to about 24% of group total, accelerating its push beyond ⁠electrical equipment and automation into higher-growth, recurring-revenue software, he added.

Booming demand for data centres, particularly from the US, is driving Schneider's earnings, ​offering a growing source of revenue that is helping it offset weakness in some traditional electrical-equipment markets.

PTC, ‌which provides software ⁠solutions for designing, manufacturing and servicing products across multiple sectors, has also benefited from growing demand for its AI-powered tools.

Monday's deal follows Schneider's June agreement to buy Cognite Holding, a privately held provider of AI software and industrial data.

DEAL DETAILS

The transaction ‌would be Schneider's largest-ever acquisition and one of the biggest in Europe this year, according to LSEG data.

It would be financed through an issuance of new shares worth €5 billion to €6 billion under an existing shareholder authorisation, and new debt of €16 billion to €17 billion.

The $205-per-share offer implies an enterprise value ​of $23.7 billion for PTC and represents a 42.3% premium to its last closing price.

France's third-highest-valued listed company expects the deal to generate €250 million in annual run-rate cost savings by the third year after closing, alongside about €800 million in revenue synergies.

The acquisition ‌is expected to ⁠close by the third quarter of 2027, ​subject to approvals from PTC shareholders and regulators.

($1 = €0.8929)

(Reporting by Sabrina Valle in New York, Harishankar Manoj in Bengaluru and Lucie Barbier and Dimitri ​Rhodes in Gdansk; Editing by Cynthia Osterman, Nick Zieminski and Milla Nissi-Prussak)