Hexagon: A lucrative divestment that allows the group to sharpen its strategic focus

Hexagon will have generated strong returns during its 9-year ownership period of Design and Engineering business if the agreed divestment passes the regulatory approvals. The divestment could cut some 7% of the group adjusted EBIT but the deal valuation is some 10% of Hexagon’s market cap or 9% of EV. The divested business, purely software and very profitable, was of high quality but it lacked a strategic fit why we see the deal in positive light from shareholder’s perspective. Hexagon is seeking a more focused scope of business and is planning for splitting up itself in H1 2026 into two listed entities why we see it natural that it streamlines its business portfolio with divestments.

Design & Engineering to be sold to Cadence

Hexagon announced that is has come into an agreement to sell its Design & Engineering business to Cadence Design Systems. D&E contributed approximately 265 MEUR to the revenues of the Manufacturing Intelligence division in 2024, at a profitability level above Hexagon group averages. Cadence will pay approximately 2.7bn EUR for the business, with 30% of the consideration to be paid through the issuance of Cadence common stock to Hexagon AB and the remainder to be paid in cash. The deal is expected to close in Q1 2026 and is subject to customary closing conditions and regulatory approvals.

Hexagon made good money with its 9-year holding period of MSC Software

We consider the achieved valuation in sales transaction to be rather lucrative (EV/EBIT 25x assuming the business had 40 % EBIT-margin). D&E consists mainly of MSC Software that Hexagon acquired for 775 MEUR in early 2017 (sales 209 MEUR) and a small complementing acquisition of Romax in 2020 (sales 27 MEUR). If we exclude the price of Romax in the calculations (acquisition price not disclosed), Hexagon achieved an annual return of some 15% for its initial investment in MSC Software during the 9 year holding period, even before taking into account the cash flow that the business has generated for the group over the years.

Hexagon transforms to focus on robotics and sensors

Design & Engineering consists of simulation software that allows engineers to validate and optimize product designs using virtual prototypes which can complement and even replace traditional physical testing procedures. It has no major synergies with Hexagon’s sensor and robotics product offering why we believe Hexagon is divesting it. The company plans to sharpen its strategic focus by spinning-off Octave, a pure-play SaaS business that focuses on solutions to design, build, operate and protect industrial assets. The remaining part of Hexagon will focus on sensors and robotic solutions including both hardware and software.