Dassault Systemes vs Google?

Yesterday, the top news in the French high-tech community was the acquisition of Exalead, an enterprise search company, by Dassault Systemes, the leading PLM software vendor, for 135M€. The good news was a significant exit for a French Startup. If the VC market has been flushed by money driven by tax loopholes, the exit market has been going through a much drier spell. It also means that Exalead leading technology can accelerate its distribution through Dassault Systemes and its customer base.

However, this is a very surprising deal. The rational of the acquisition as described in the official press release is very light. The core market of Dassault Systemes is still in the discrete manufacturing space (Automotive, Aerospace) and the complementarity between their PLM suite and a search engine is not that obvious. Yes, Dassault Customers can benefit from Exalead technology but a distribution agreement would do the same. If it is a pure technology diversification, Exalead is small (16M€ revenue allegedly) and will not impact materially the EPS.

The more surprising comments on the deal both official and on the web are about Exalead. There is no doubt that Exalead has a good technology and has been fairly successful. However, presenting it as the French Google is a major distortion of reality:

1. Exalead is not a consumer search engine driven by advertising. It is mostly an enterprise search company. Its real competitor are indeed Google and Microsoft but mostly Autonomy. Autonomy is a UK company worth about 5Bn€ (close to Dassault Systemes' market cap of 6Bn€) with revenue that should be close to 800M€ this year.
2. Exalead has relied on significant state financing from the French state via Quaero, the ill-fated state initiative to build a French competitor to Google. Exalead was the number 2 recipients of state subsidies with 19M€ behind Technicolor. We are very far from the Darwinian model of innovation of Silicon Valley

The undisputed winner of the day is Qualis a financial holding which owned 69% of Exalead. Congratulation to them! And good luck to Dassault Systemes in their diversification and their future fights against Autonomy, Google and Microsoft.

Frederic HALLEY