PTC Bets Big on Closed-Loop PLM Market Expansion with $1.46 Billion SercviceMax Acquisition and New Industrial SaaS Posture

PTC’s multi-billion-dollar acquisition spree continues with the intended pickup of FSM leader ServiceMax for US$1.46 billion. The main intention is to unite PTC’s smart connected product and operations expertise with everything that happens downstream in EAM and FSM. The deal comes at a time when PTC has made clear that it is going all-in on subscription and Software-as-a-Service (SaaS)-based offerings, including OnShape for computer-aided design (CAD), Arena for PLM, and Codebeamer for Asset Lifecycle Management (ALM), all added to the PTC portfolio in the last three years. Most of the companies’ market linkages tie back to discrete manufacturing environments, particularly asset-intensive industries, such as medical devices, industrial applications, and utilities.

PTC has built its Industrial Internet of Things (IIoT) and transformative technologies portfolio through a series of acquisitions, investments, and partnerships. It acquired the ThingWorx technology platform for the IoT in 2013; Axeda for device management in 2014; ColdLight and Vuforia for Machine Learning (ML) and Augmented Reality (AR), respectively, in 2015; Kepware for industrial communications in 2016; Waypoint Labs for AR expert capture in 2018; Factora Solutions for smart manufacturing domain expertise in 2019; and Onshape for a SaaS native product development platform (that all PTC products will be deployed on over time) in 2019. PTC also acquired Arena for SaaS PLM in 2021 and has formed strategic alliances with Rockwell Automation, Microsoft, and Ansys.

PTC first partnered with ServiceMax in 2015 to jointly develop, co-sell, and co-market products. ServiceMax provides a comprehensive suite of cloud-native FSM capabilities built on the Salesforce platform. These capabilities include managing all relevant information about serviced products, creating/managing work orders, and scheduling/dispatching technicians. ServiceMax’s FSM capabilities are also closely integrated with Salesforce’s Customer Relationship Management (CRM) system.

This partnership with PTC was cut short by GE’s acquisition of ServiceMax in 2017. Since then, PTC has judiciously progressed via organic and inorganic growth while ServiceMax stood still—namely as a good fit for complex products with long lifecycles that have critical uptime requirements and endure natural wear-and-tear such that they require field attention and service. ServiceMax was later spun off to SilverLake Partners (2019) and was going to Initial Public Offering (IPO) until the IPO market collapsed, making PTC an interested party and eligible suiter.

PTC’s business is largely bifurcated along two lines: Smart Connected Products (SCP) and Smart Connected Operations (SCO). The company has seen considerable success in its SCP business compared to its SCO but expects SaaS to be additive across the board with the SaaS business growing to be 16% of Annual Recurring Revenue (ARR) in FY22, mid 20s% of ARR in FY23, and mid 40s% of ARR in FY27. Acquiring ServiceMax also sets up the duo for cross sell opportunities in several areas, the most notable of which is the unification of PLM and CRM, with potential SCO sales.

PLM software provides a 360-degree view of the product and is increasingly cloud- and SaaS-enabled (e.g., Arena); CRM software, by contrast, provides a 360-degree view of the customer and has been largely cloud- and SaaS-enabled for years. While PTC first started its transition from a perpetual license software business to subscriptions in 2014, the benefits of this strategic move have only come to the fore more recently. PTC expects the overall transition to SaaS will take about a decade and result in ~70% of its >US$1 billion of on-premises ARR converting to SaaS.

Customer benefits driving the transition to SaaS include more innovation, better collaboration, lower total cost of operation, improved security, and fewer headaches thanks to using managed services. Product sales may slow down due to macroeconomic headwinds, but service needs and high margin service opportunities will likely persist. These dynamics help insulate PTC and now ServiceMax from market uncertainty while providing a fulcrum to re-orient and re-incentivize teams using a structured “SaaS Transition Program” comprising more than sixty leaders across over thirty workstreams.

The short straw is that PTC’s SaaS gross margin is hovering at 70% while the gross margin for an on-premises solution or perpetual license using the same scenario would be 92% and 96%, respectively (SaaS customers shift the cost of the hardware stack, software stack, and system administration to PTC). At the same time, PTC sees less discounting with SaaS (versus enterprise-wide perpetual license deals) and has the potential to reduce spare parts inventories by feeding data from the field back to designers and engineers for overall systems optimization. The other reality PTC hopes to realize is the applicability and relevance to a broader swath of companies, at different stages of PLM and FSM maturity. A lot of this works smoothly if PTC sells directly to the customer; however, the model of feeding data from the field to designers and engineers is less clear if FSM is the lead-in or delivered/installed by another party. In any event, the customer will likely want a say in what happens with data from products in the field.

All PTC products will eventually have a SaaS option, though it plans to indefinitely provide on-prem offerings for select products, including Creo and Windchill.