PTC Closes $470M Onshape Deal: What's it Mean?

PTC, a Boston-based company that specializes in the Industrial Internet of Things (IIoT), has completed the purchase of late-stage startup Onshape for $470 million in cash. PTC hopes the move will add recurring, subscription-based revenue to its IIoT service lineup.

So far, the market seems to like PTC’s latest purchase. On November 5, shares were up $2.08, or 2.94 percent, to $72.84.

Onshape was founded in 2012 in Cambridge, Mass., and has a total funding of $169 million from Andreessen Horowitz, NEA, North Bridge, and others. It offers computer aided design (CAD) and product lifecycle management (PLM) via a software-as-a-service (SaaS) model. Onshape reportedly has 5,000 subscribers to its services, including a lot of SMBs in the manufacturing sector. The vendor claims at least two large enterprise customers — Kichler Lighting LLC and the Trek Bicycle Corporation.

It’s About Recurring Revenue

In a prepared statement, PTC said buying Onshape is part of a move toward “a recurring revenue business model, the first step of which was the company’s successful transition to subscription licensing, completed in January 2019.”

“Today, we see small and medium-sized CAD customers in the high-growth part of the CAD market shifting their interest toward SaaS delivery models, and we expect interest from larger customers to grow over time,” said PTC CEO Jim Heppelmann in the statement.

While CAD and PLM aren’t typically offered as SaaS subscriptions, PTC says demand is growing for these kinds of services. It quotes IDC’s CAGR of 18 percent for this segment of the enterprise SaaS market -- which, however, IDC concedes as accounting for less than 10 percent of enterprise cloud applications.

PTC Needs to Digest

PTC’s purchase of Onshape follows its approach of acquiring technology companies to fill specific needs, then marketing them under their existing brands. Analysts have applauded the five IoT acquisitions on which PTC has spent over $600 million since 2013, while arguing that PTC’s ability to put it all together in one platform remains in question.

But PTC claims its ThingWorx platform already offers an integrated solution. It cites partnerships with Rockwell Automation and Microsoft as evidence that it offers a premium IIoT platform that extends to a range of manufacturing scenarios and applications and blends in well with them.

PTC has made some very good choices in the IIoT realm up to now, so it seems reasonable to assume the Onshape buy will continue the trend. PTC has bet big that it will.