A Q&A with Atego and VDC’s Analysis
What Happened?
Artisan Software Tools and Aonix announced today that they have merged to form a new company, Atego.
This move marks the third round of M&A activity for Artisan software over the past three months, and the fifth over the past two years.
After having been pre-briefed on the news, VDC conducted a follow-up Q&A with James Gambrell, the former CEO of Artisan who was appointed Executive Chairman of Atego, to discuss his view on the impact of this announcement for both companies as well as the embedded market in general. In previous management roles, Mr. Gambrell has taken companies from 15 to 750 staff and from $1.7 to $55 million.
VDC’s Interview
VDC: With both the Artisan and Aonix brands already well established within the real-time and embedded markets, why have you created a third company name? Can we expect Atego to maintain both the Artisan and Aonix brands and product names going forward?
Gambrell: “Artisan embarked on a market consolidation program two years ago and this is the fifth merger, but not the last. As a platform for further market consolidation, we wanted a new name that would recognize both Artisan’s roots and those of Aonix while allowing us to expand outside our historical product and market boundaries. Both brands will continue as part of product groups built around the existing product sets so that the heritage of our product names will continue into the future. We remain fully committed to our current and future customers. Our consolidation plan expressly avoided product overlaps, so that we can be very clear about our commitment to the full suite of Atego products.”
VDC: Aonix previously had its own modeling tool offerings (Software through Pictures and Ameos) as well as a set different set of modeling solutions with its roots at SELECT Software Tools (not to be confused with Artisan Studio). What will make this marriage of tool suites and design methodologies more harmonious and successful than Aonix’s previous endeavors?
Gambrell: “While very powerful, the Aonix StP and Ameos modeling tools both endured as long as possible, with their legacy modeling notations. The Select modeling business was not part of the Aonix management buyout. As a result, this left Aonix with sales staff experienced in selling
VDC: In recent years, Aonix has invested heavily in the development and promotion of the use of Java in real-time embedded applications. Will you continue this focus for the Aonix business? If so, what are your long-term plans for the ObjectAda Development Solutions, which by VDC’s estimates still represents over 40% of Aonix’s revenue?
Gambrell: “Yes, we will continue to push the Aonix Java solutions. While the real-time Java market has been a little slow to take off, we firmly believe its early success will ensure the future is bright for Java for real time systems. Because we have a large base of
VDC: We expect that there is the most potential for current client overlap between Artisan and Aonix within the military/aerospace vertical market, which has historically driven the majority of both companies’ revenue. Are there any other industries in particular that you expect the combined entity to hold the most potential for revenue growth as compared to that of the two independent businesses?
Gambrell: “It is true that the Military, Aerospace and Defense markets have been very important for both Aonix and Artisan, which in the short term will allow us to cross sell our solutions to each other’s customers. In the longer term, however, we have been taking action to enlarge our scope across other verticals. Another area of focus is Rail, Automotive and Transport. In addition to the success we have been having in rail, our recent acquisition of Extessy in
VDC: Aonix’s business has traditionally been more weighted toward the
Gambrell: “Absolutely, we do. The geographic footprint of both organizations is highly complementary. As well as significant operations in the
VDC: In the press release, you characterized the merger as “the catalyst for future market consolidation.” Can you please elaborate on why and how you expect this announcement to generate this kind of a reaction?
Gambrell: “We developed a strategy to drive the next wave of consolidation in our market to deliver an ever increasing value proposition to our customers. With this significant merger and name change, we are now in a stronger position to accelerate our consolidation plans. Our scale now allows us to take on larger merger and acquisition targets. We have also shown that we can successfully merge internationally distributed organizations, rationalize business processes and achieve economies of scale. We have learnt the lessons required to successful replicate acquisitions on a larger scale. ”
VDC: Aside from the potential for further market consolidation, what are the major trends you see affecting the embedded market in 2010 and how is Atego positioning itself to capitalize on them?
Gambrell: “Our market place is dominated by hugely inefficient development practices and highly fragmented technical capabilities – so we see the current market needs for simplified tool chains and productivity improvements being held back by an aging workforce who must find ways to pass on the hard won institutional knowledge. Taking lessons learned from one industry and applying them in a lower risk environment requires the merging of best practices from many parallel domains. Mechanical engineering is bringing ideas like ‘product lines’ while software engineering best practices of component and service based development but considered in a new light. Also learning from the adoption of ERP - which saw a set of tightly integrated applications with a common database dramatically improve corporate supply chains, but unfortunately adoption had a painfully high cost requiring companies to radically alter their operating practices to those allowed by the ERP application. Atego learned the lessons and is delivering an integrated tool chain characterized by a set of loosely coupled applications with a common meta-database which support a company’s existing process & methodology – including working natively in the customer’s tool of choice – even when it’s not one supplied by Atego.”
VDC: In another recent announcement, Artisan announced a solution focused UML/SysML-based hardware/software co-design from the EU’s FP7 SATURN project. In your opinion, what are the key differences in this technology/methodology that can enable it succeed when many leading EDA companies (unsuccessfully) attempted to promote the hardware/software co-design concept through their own Electronic System Level (ESL) tool offerings a few years ago?
Gambrell: “The need has always existed and now the technology has grown up. Projects like SATURN learn from mistakes of the past, one of which is the use of industry standards. We are working with partners on these projects that have truly innovative technologies. Fusing them with market proven modeling tools such as Artisan Studio and the established and emerging OMG standards of SysML and MARTE gives us a much better platform on which to advance. Our domain experts, proven tools and established industry standards give us a better starting point.”
VDC’s View
This announcement comes on the heels of a number of other recent M&A deals that have altered the embedded marketplace over recent months such as Cavium’s acquisition of MontaVista, IBM’s acquisition of Ounce Labs, and Intel’s acquisition of
These as well as Aritisan’s previous acquisitions have highlighted a couple key trends emerging out of the recent recession:
- It is a buyer’s market where companies can be acquired at a substantial discount as compared to the multiples garnered earlier in the ‘00s.
- The growth in embedded system complexity did not suffer the same set backs as our GDP, nor did embedded engineers’ desire/need to do more with less (not to mention faster).
This announcement, however, still leaves a number of lingering questions:
- How well will the integration of tools and design methodologies generate revenue growth within the companies’ existing accounts as well as generate net new opportunities?
- How will customers – both current and prospect – react? Will they see Atego’s expansion strategy as providing them with additional flexibility and enhancements to their solutions or as potentially detracting from the development of their core products?
- With Atego now representing an amalgamation of small companies, will the drastic change in size present any challenges to the established corporate cultures and, ultimately, the success and productivity of the various product groups spread across the globe?
Despite these unanswered questions, this large merger has not seemed to quench or peter Artisan/Atego’s thirst to obtain a position of leadership within the broader embedded market. Mr. Gambrells’ statement pitting the merger as a catalyst for further M&A activity, underscores his view – as well as that of VDC – that engineering teams are increasingly looking for a level of inter-tool integration and communication that can offer a means to address the increasing system complexity while reducing development time (and cost).
However, only time will tell if Atego’s growth aspirations will lead them on a path to become an embedded ALM market titan or if their rapid expansion will turn into something closer to an Icarian ascent.
See our post after Artisan’s acquisition of EXTESSY this fall:
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