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January 4, 2005

UGS buys Tecnomatix for $228 in PLM deal

Product lifecycle management software vendor UGS Corp will pay $227.7 million in cash for Tecnomatix Technologies Ltd, to extend its product range into manufacturing process management.

By CBR Staff Writer

The UGS offer is worth $17 a share and UGS says it represents a 39% premium over the average closing price over Tecnomatix’s last 60 trading days.

News of a possible deal had already leaked out in Tecnomatix’s native Israel, so its Nasdaq-listed shares only rose 10.27% to $16.75 when the official announcement was made.

The takeover will hasten the integration of Tecnomatix’s products into UGS’ Open Manufacturing Backbone, an environment for integrating third-party software, as well as its E-factory manufacturing product line.

Both companies develop software that helps manufacturers coordinate their factory-based design and engineering activities. They have already been working to integrate their PLM products since 2002.

Tecnomatix’s CAPE (Computer-Aided Production Engineering) tools enable manufacturers to design processes and products together, and are said to be a good fit with PLM software.

UGS CEO Tony Affuso said that Tecnomatix software will provide UGS customers with expanded offerings and will produce new customers in the vertical industries Tecnomatix serves.

With UGS making rapid progress and filling out its product range, the venture capitalists may well be tempted to cash in on their investment with an IPO in the near future.

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Though still a private company, UGS said that in the first nine months of 2004 revenue increased 15% to $724.7 million.

After treading water in the previous three years, Tecnomatix made rapid progress in 2004 and, in its last quarter to September 30, posted net income of $1.27 million on revenue 20.4% higher at $73.5 million.

UGS says that it will offer combined PLM systems, as well as continue to market Tecnomatix’s products as standalone offerings for integration with third-party PLM environments.

UGS already claims to have seen a 100% increase in digital-manufacturing related revenue last year. It expects Tecnomatix to pull in a further $100 million this year.

In its last full reported fiscal year, UGS reported profits of $104 million against revenue of $879 million. The company boasts more than 42,000 PLM clients worldwide.

Tecnomatix’s strength is in the automotive, aerospace and electronics sectors. The Herzlia, Israel-based company has a blue chip customer base with BMW, Fiat, Ford, General Motors, Renault and Volkswagen in automotive; Airbus, Boeing, Lockheed Martin and Pratt & Whitney in aerospace; and Ericsson, Motorola, Siemens, Solectron, Flextronics and Sanmina-SCI in electronics.

The deal, which is expected to close in the first quarter, has been recommended by the Tecnomatix board and accepted by owners of 13% of the equity, including the firm’s founders.

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