Smart Grid, ABB and the Ventyx Acquisition

The May 10th announcement that ABB was acquiring Ventyx in a $1 billion deal was one of those “sucking sound” moments as competing companies and their CEOs took a deep breath and began to worry.  Much of what has been written in the trade press since the announcement has focused on the reasons ABB made the acquisition and what it means to the segment.[1]

But let’s stop for a minute and give some credit to Robert Smith, the Managing Principal at Vista Equity Partners and his team for a good investment strategy well flipped.[2] Smith founded Vista Equity in 2000 after a successful stint at Goldman.  His approach at Vista Equity Partners has been to “enable good businesses to achieve their full potential.”

But Vista did more than just go after “best in class” companies—that is what everyone seemed to be doing.  Vista targeted the software and energy technology space and assembled a group of those best in class players and sought to integrate them to add value to each of the deals. Ventyx was created as a platform to live into Vista Equity’s vision and in little more than five years Vista has realized a $1 billion payday.

But the genius of the Robert Smith strategy is flipping Ventyx while smart grid foreplay is still exciting.  With more than $18 billion likely to be spent on smart meters, networks, software to run them and every gadget known to man to make use of smart grid’s potential there is going to be a lot of consolidation lust going on in this space.

Many great products and devices are being conceived but few will survive to maturity since standalone they are not sufficient to meet the needs of smart grid customers.  Consolidation is the Darwinian process of survival of the fittest.  Best in class products are good but they must fit in the natural order of things to survive.  And even best in class integrated solutions still must remain seductive on the dance floor of Oracle, SAP and others where there are many pretty faces competing for attention.

For a “good business to achieve its full potential” like Ventyx, it now needs to be married to a partner with much deeper pockets than Vista Equity Partners to integrate the Ventyx features and functionality into global energy markets across the supply chain around the world.  ABB needs such features and functionality to make up time lost dabbling with other solutions that did not survive to maturity.  This acquisition is perceived as reducing ABBs risk of being left behind, but it does not assure ABBs success in the space.  Success will depend upon what it does with Ventyx.

The risks to a Vista Equity Partners of continuing to buy charms to hang on the Ventyx diamond bracelet was greater than taking the $1 billion now and looking for better returns by doing the same thing over again with another set of best in class products or companies.  For Vista Equity Partners this is a great time to be a buyer of best in class companies to live into its vision, so give Robert Smith credit for knowing when to flip.  For ABB it’s time to show shareholders you got your money’s worth by using the Ventyx ”good businesses” to achieve ABB’s “full potential.”