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Why the two year wait for Aveva's ?3bn Schneider Electric tie-up could prove worth waiting for

The ?3bn tie-up between Schneider Electric’s software arm and British software engineering company Aveva has been years in the making, but offers investors a slice of a lucrative digital future.
The deal will broaden Aveva’s focus, both geographically through Schneider’s strong US presence and by reducing its overall exposure to the downturn-hit oil market and the struggling oil field services sector. But in a wider sense the deal accelerates the Cambridge tech giant’s advance into the industrial sector’s digital revolution.
The strategic rationale behind the new, enlarged Aveva goes back a long time, explains Philip Aiken, the company’s chairman. “We’ve always recognised what a good opportunity this is,” says Aiken. “We have a fundamental belief in industrial software. The growth in innovation is more and more important. This is about creating a company for the future to maximise opportunities in this very exciting sector,” he explains.
He has sat at the helm of the board since 2012, overseeing the collapse of takeover talks in 2015 and the short-lived revisit of the merger, which came to light unexpectedly last year before quickly being snuffed out again. This time, Aiken is sure-footed and both sides are highly prepared.
Why the two year wait for Aveva's ?3bn Schneider Electric tie-up could prove worth waiting for

Industrial players are undergoing a digital revolution
The deal prospectus will be unveiled tomorrow to hungry investors and analysts who expect that, this time, the deal will close by the end of the year. Under the terms of the deal, Schneider will take a 60pc stake in Aveva 2.0 in exchange for injecting its software division into the new London-listed business. In addition, existing Aveva shareholders will receive ?650m in cash, equivalent to around 1,014p per Aveva share.
Last year the combined revenues for the pair would have been around ?658m, with adjusted earnings before interest, tax and amortisation of ?146m. But rather than just pure numbers, it is the strategic advantage this deal offers in the booming market for industrial data that provides an arguably stronger rationale. Over the past two years Schneider’s work to carve out a legally separate software arm has made the long-awaited merger a safer bet, which analysts say will go the distance.
Third time lucky? | Why Aveva and Schneider's deal didn’t work before now
“This seems like the best option for Aveva shareholders,” says Julian Yates, an analyst at Investec, who points to the benefit for Aveva shareholders of diversifying away from its focus on the oil and gas market, which currently stands at 40-45pc.
Although, on completion, the enlarged business will still have an overall exposure of 46pc to these, at times, troubled sectors, the key difference is that Schneider’s business has a much bigger exposure to “downstream” and “midstream” oil and gas activities, such as refining petrochemicals and fuels, which have emerged as the growth engines for energy companies in recent years.
In addition, the deal broadens Aveva’s customer base from one dominated by cash-strapped oil field services companies to one that includes more owners and operators, an area ripe with longer and potentially more lucrative relationships.
Aveva and Schneider Electric | How the pair stack up
By the end of the decade experts predict that major manufacturers and energy producers will be spending in excess of ?200bn every year on digital technology to create vast performance data sets, and a competitive edge. The owner of an oil rig or offshore wind farm could, for example, avoid major outages by developing infrastructure fitted with sensors that stream data back to a central framework set to pick up even subtle changes in the pressure of an oil well or speed of wind farm ball-bearing. 
The trend is a major driver behind a flurry of deals between software experts and industrial giants, including Siemens and Sweden’s Hexagon, in recent years. And the reason why machinery manufacturers such as John Deere are turning to insurance sales alongside their traditional activities. Instead of being involved in a project for a handful of years during design and development, the enlarged Aveva will have a role to play throughout the lifetime for a project, which could run through decades.
This seems like the best option for Aveva shareholdersJulian Yates, analyst at Investec
“It balances things out a lot better than we had before,” says Aiken. “That’s the beauty. In the oil and gas sector the upstream, midstream and downstream portfolio is very unique compared to our competitors. We have an end-to-end offer that nobody can match.”
The aim is to create a group with the culture of a software company, which can attract talent and thrive in the digital revolution that is sweeping heavy industries. The new company will employ about 4,500 people around the world but will continue to be listed in London with its UK staff based out of its Cambridge offices.
Aveva and Schneider are already on the hunt for a new chief executive for the wider group, with James Kidd, the incumbent Aveva boss, sticking around for now. 
“Aveva has done very well over the last few years in a very difficult market. But this is too good an opportunity to create a unique opportunity in the market,” Aiken says. Third time around, investors will hope he is right.
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