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Gerber Acquisition Would Strengthen Lectra’s Foothold in Fashion

When French firm Lectra announced it was shelling out almost $362 million for Gerber Technology, it was undoubtedly a big shakeup for the digital design, product development and manufacturing space in fashion and apparel. However, the ramifications run deep into the apparel industry—and that can be a major benefit for those looking to level up their on-demand production capabilities.

Lectra’s current suite of products includes software and automated cutting equipment enabling clients to automate and optimize product design, development and manufacturing, and digitize their processes across three major markets: fashion, automotive and furniture. But Gerber’s own suite will give Paris-based Lectra a greater foothold in fashion, where the U.S.-based company specializes.

While fashion clients drove 51 percent of Lectra’s revenue (approximately $48.2 million) from perpetual software licenses, equipment and accompanying software and non-recurring services, Gerber took in 66 percent of revenues (approximately $53.7 million) in these categories from the fashion sector.

Combined, the companies would see 58 percent of aggregated revenues come from fashion, and another 13 percent coming from furniture. Lectra’s share of automotive would drop from 28 percent to 20 percent.

At a recent analyst conference, Lectra CEO and chairman Daniel Harari was optimistic about the new opportunities to up-sell and cross-sell products from both Lectra and Gerber to an even wider range of clients across sectors.

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“These are highly complementary customer bases and geographic market positions, and we can now address this broader customer base with more value through seamlessly integrated solutions,” Harari said.

The fusion of Lectra and Gerber does more than impact the sectors covered—it brings both companies to entirely new markets. The biggest market for Lectra is naturally Europe, which drove 43 percent ($123 million) of total 2020 revenue. Its Americas market drives 27 percent ($77.3 million) of total sales, and is where it has concentrated its efforts for two years now.

Conversely, Gerber already sees the majority (54 percent) of its sales come from U.S. customers at $108 million, while its European clients drive a much smaller 21 percent ($42 million) of revenue. The technology providers report a similar share in the Asia-Pacific region, which generates 23 percent of revenue for Lectra and 20 percent of sales for Gerber.

When aggregating the 2020 revenues, the Americas would become the largest region served across Lectra and Gerber. While the Americas segment would drive 38 percent of the revenue, Europe would take in 34 percent.

The Americas segment is a massive, and Gerber’s clients in the space span some of the biggest fashion names around, including Ralph Lauren, VF Corp., Adidas, Hanesbrands, Gap Inc. and Canada Goose. Gerber also works with Inditex, bringing one of Europe’s premier fashion players under Lectra’s roof.

From 2017 to 2020, the percentage of Lectra customers that ordered software via SaaS means instead of the traditional perpetual license jumped from 3 percent to 45 percent. Meanwhile the number of perpetual software licenses paid in one lump sum have dropped from 97 percent to 55 percent.

In 2020, Lectra and Gerber generated a combined 5.9 million euros ($7.2 million) in revenue from software sold in SaaS mode. While this recurring revenue number seems small, most of the recurring money generated from software comes from maintenance contracts. For example, while Lectra saw software subscriptions jump 137 percent year over year to 3.7 million euros ($4.5 million), maintenance contracts totaled 95.7 million euros ($116.1 million).

Gerber netted 2.2 million euros ($2.7 million) for SaaS sales of its Yunique PLM and AccuMark platforms.

From a sheer size standpoint, the combined companies would become the global leader in value and volume across textile manufacturing software. In 2020, Lectra and Gerber Technology achieved combined revenue of 401 million euros ($486.3 million) and EBITDA before non-recurring expenses of 50.3 million euros ($61 million), with Lectra itself carrying a majority of the burden with 236 million euros ($286.2 million) in revenue and 37.5 million euros ($45.5 million) in EBITDA before non-recurring expenses.

Under the acquisition, Lectra will remain the combined company name and the company’s headquarters will remain in Paris, but the Lectra and Gerber Technology brands will remain.

Lectra’s proposed acquisition of Gerber and extended partnership with Microsoft came just as the company reported its fourth-quarter and full-year 2020 results. Revenue for the quarter dipped 12 percent to 65.6 million euros ($79.6 million) and net income fell 18 percent to 6.6 million euros ($8 million).

“Lockdown measures implemented by most countries, at different times during the year, led to a significant reduction in activity by the group’s customers,” Harari said. “While overall business activity improved in the closing months of the year, many customers were still operating below pre-crisis levels and therefore made reductions in capital expenditures or operating expenses. All three strategic market sectors—fashion, automotive and furniture—have been strongly impacted, though the furniture market experienced a rebound starting in the third quarter.”

Gerber extends Lectra’s ‘4.0’ strategy

The Lectra 4.0 strategy was launched in 2017 with the aim of positioning the company as a key “Industry 4.0” player in its markets before 2030. This means adapting to the new needs fashion brands and manufacturers that must rethink and merge the in-store and digital experience, release new and more creative models to market quicker, and demonstrate their eco-responsibility, all while reducing inventories, markdowns, and unsold stock.

The “Industry 4.0” offerings have been implemented through two consecutive strategic roadmaps: the first being the 2017-2019 roadmap, which included the successful integration of cloud computing, IoT, big data and artificial intelligence offerings in the Lectra platform, the reorganization of subsidiaries in four main regions and the launch of its first SaaS offering.

In 2020, the second straight three-year plan was implemented with four major strategic priorities: accelerate organic growth, strengthen customer relations, extend the offers for Industry 4.0 and develop new areas for growth. With Gerber in tow, Lectra would add a fifth priority to “capture all synergies arising from the acquisition.”

Lectra’s fashion solution suite currently operates with numerous Industry 4.0 offerings, including ready-to-wear, personalized textile production platform Fashion On Demand by Lectra, collaborative product information management platform Kubix Link, fashion market analytics solution Retviews and cloud applications Quick Estimate and Quick Nest.

Lectra says that 270 clients now use one or several of these Industry 4.0 offerings, up nearly tenfold from the 28 that used them in 2018. But the company said that Gerber’s automated cutting solutions including Gerbercutters, Gerber MCT Cutter, EnVision and GS Plus Series are already a fit into its Industry 4.0 offerings, underscoring integration synergies.

Although the companies’ combined revenues dropped from 482 million euros ($584.6 million) in 2019 to 401 million euros ($486.3 million) in 2020, Lectra now anticipates the company will bounce back to 2019 levels of revenue in 2022.

Harari and the Lectra team established high goals for when the Gerber acquisition is finalized, particularly for recurring revenue. To ensure sustainable growth. Lectra wants to increase its recurring revenues by 20 percent in three years.

“Recurring revenues should account for over 60 percent of the revenues in 2022,” Harari said. “Our following objectives are: Revenue from software sold in SaaS mode to exceed 13 million euros ($14.5 million); 4 percent annual growth in revenue from CAD/CAM and PLM software maintenance contracts, and equipment and accompanying software maintenance contracts; and 5 percent annual growth in revenue from consumables and parts.”

Lectra is still not providing guidance for 2021 amid the uncertainty of the Covid-19 pandemic.