EMERSON TO ACQUIRE OPEN SYSTEMS INTERNATIONAL (OSI) INC. August 27, 2020
Safe Harbor Statement Statements in this presentation and our commentary and responses to questions that are not strictly historical may be “forward-looking” statements, which involve risks and uncertainties, and Emerson undertakes no obligation to update any such statements to reflect later developments. These risks and uncertainties include the scope, duration and ultimate impact of the COVID-19 pandemic, as well as economic and currency conditions, market demand, including related to the pandemic and oil and gas price declines and volatility, pricing, protection of intellectual property, cybersecurity, tariffs, competitive and technological factors, among others, as set forth in the Company's most recent Annual Report on Form 10-K and subsequent reports filed with the SEC. Non-GAAP Measures In this call we will discuss some non-GAAP measures (denoted with *) in talking about our company’s performance, and the reconciliation of those measures to the most comparable GAAP measures is contained within this presentation or available at our website www.Emerson.com under Investors.
Emerson’s Active Acquisition Strategy is Mixing into Higher Multiple Control and Data Management Layers 2016 - 2020YTD # DEALS: RECENT ACQUISITIONS: DATA 14 MANAGEMENT & OSI Power SERVICES Recent Focus Insights Converts rich data to ü inmation (Equity Position) from information information and develops are fundamental to delivering actionable insights optimization 3 OPTIMIZATION ü American Governor CONTROL Customers rely on our ü Verdant control systems, which Performs action on ensure their processes rich data collected are optimized, running safely, from the field efficiently, and productively 16 DEVICES / INSTRUMENTS / Our established credibility with customers through world SENSORS class devices/instruments/sensors lays the foundation to optimize our customers’ broad needs Generates rich data Emerson Has Tremendous Credibility With Our Customers and Is Uniquely Positioned to Provide Optimized Solutions for Our Customers Up and Down the Technology Value Pyramid 3
OSI and Emerson Together Offer a Complete Electric Utility Solution from Generation to Metering GENERATION TRANSMISSION DISTRIBUTION Distributed Control Energy Management Advanced Distribution System (DCS) System (EMS) Management System (ADMS) • Controls power • Controls power flow and • Controls power flow and voltage to end users and from generation to match voltage from plants to distribution distributed energy resources demand • Advises power plants of • Manages restoration of power following a power outage • Optimizes plant generation needed to performance match demand Distributed Energy Resources (DER) Distributed Energy Resources (DER) Hydro Generation (American Governor) Gas / Steam Turbine Substation Transmission Substation Distribution Lines Utility Lines Scale Solar EMERSON STRENGTH OSI STRENGTH 4
OSI Adds Attractive Power Transmission & Distribution Software Platform to Emerson’s Portfolio Emerson Capabilities Plant Optimization Grid Analytics Digital Twin OSI Capabilities DATA Process Analytics EMS (Transmission) Demand Response Future Opportunities MANAGEMENT Advanced Power Apps GMS (Generation) Energy Trading Digital Twin ADMS (Distribution) DER Dispatch & Converts rich data to Settlement information and develops Asset Analytics Outage Management actionable insights Behind the Meter Grid Asset Mgmt (BTM) Energy Management BOP Controls CONTROL Generator Excitation Distributed Energy Resource Management Performs action on Turbine Controls SCADA DER Control rich data collected Nuclear Controls RTU Microgrid Controls from the field Hydroelectric Solar/Wind Controls Battery Storage System Management Dynamic Line Rating Phasor Measurement Behind the Meter Connected Instruments DEVICES / Smart Meters Sensors INSTRUMENTS / Connected Valves Grid Edge Sensors Substation Sensors SENSORS Machinery Health Dist. Line Sensors Monitoring Intelligent Relays Generates rich data Power Generation T&D Distributed Generation OSI’s Software Portfolio Positions Emerson’s Power Franchise to Lead in the Ongoing Electric Grid Digitization 5
OSI Overview COMPANY PROFILE SALES MIX Headquarters Founded Description By Geography Minneapolis, MN 1992 A leading independent International provider of grid 15% automation software 2020 Sales Employees $167M (FYE 6/30/20) ~1,000 solutions for utilities, providing real-time management and Key Industries 85% optimization of power Power Transmission & Distribution, North America transmission and Natural Gas Distribution, Water distribution and Wastewater SOFTWARE APPLICATIONS PORTFOLIO End Market 1% 1% Water & Waste DERMS DR Gas Distribution GMS EMS DMS OMS Microgrid Other Distributed Demand Solutions Generation Transmission Distribution Outage Mgmt Generation Response Energy Mgmt. Sys. Adv. Distribution Mgmt. System (EMS) (ADMS) Power Power 46% 52% Distribution Transmission monarchTM (real-time platform) + Cumulus (cloud technologies) + Chronus (historian) SCADA, Field Communications, Alarming, Trending, Visualization, Load Shed, Study Mode, API’s, etc. 6
OSI Complements Strong Emerson Power Franchises and Doubles Served Market to $5.4B TOTAL ACCESSIBLE GLOBAL POWER ATTRACTIVE Source: ARC, MARKET $5.4B WITH OSI HIS, internal PENETRATION estimates POTENTIAL Current Emerson Market Expanded Emerson Market (w/ OSI) Power Generation Control Systems Transmission & Distribution Automation 65% of Utilities Have Yet to Transition to ADMS $1.9B $0.8B $1.3B $1.4B Distributed Control Systems DCS Software & Energy Management Advanced Distribution ADMS Adoption (DCS) Applications Systems Management Systems 44% 5% 2025F 2019 Power 35% 2019 Transmission Generation 24% and Distribution 2019 DCS Market 27% Market Emerson OSI Participation 2014 Participation • North American Utilities have OSI Emerson shifted CAPEX budgets from 2019 2029F 1998 2019 Participation Participation ~50% T&D in 2009 to ~67% Global 5% 2x+ Global 13% 24% T&D in 2019 • Advanced Transmission & Source: LEK, Navigant, internal estimates Source: ARC, HIS, internal estimate Distribution Automation Technologies Market expected to grow 7% CAGR from 2020 With OSI, Emerson has a tremendous opportunity to replicate our to 2030 proven market penetration strategy with leading technology and unparalleled customer intimacy Source: LEK, C3 7
Significant Opportunity for Pull-Through and Cross-Selling to Grow Emerson and OSI Installed Base Very Large GROWTH SYNERGY Emerson in 17 Integrated Utilities OPPORTUNITIES ~2,200 TWh Top 20 Companies • Joint customer executive OSI in 9 ~2,500 TWh Produced engagements • Drive Generation and Transmission & Large & Mid-Sized Utilities Distribution platform standardization Emerson in 24 ~500 TWh Next 50 Companies • Joint project pursuit and account management to expand sales reach OSI in 22 ~1,000 TWh Produced • Installed base cross selling opportunities Emerson in 209 of Mid-Sized, Co-Op & Muni’s Generators ~450 TWh • Product integration for seamless 2,900 Companies connectivity and transfer of data (500 have Generation) OSI in 330 ~1,100 TWh Produced of Total Ovation Software Controls ~50% of the Large-Scale Electricity Generated in the US — Cross Sale Opportunity for OSI’s T&D Capabilities to Ovation Installed Base 8
Highly Strategic Acquisition With Strong Profitability and Cash Flow in an Attractive Growth Market • OSI’s software platform enables customers to add new capabilities in distributed EXPANDS generation, outage response, load balancing, and demand response management SOFTWARE • Leading modular software technology is disruptive to legacy technologies PORTFOLIO • 50%+ recurring revenue supported by 100% customer retention • Expansion into transmission and distribution automation is a natural extension to DIVERSIFIES Automation Solutions’ market-leading power franchise AND EXTENDS • Doubles served market to $5.4B in a market growing at 7% with opportunity to expand to EMERSON INTO additional ~$5B into adjacent T&D markets AN ATTRACTIVE • Mega-trends are driving OSI adoption : decarbonization, digitization, and decentralization MARKET • Significant opportunity to cross-sell to Emerson’s US / Global utility customers • Strong top-line growth of ~20% in ’20 (15% CAGR in ’15-’19) STRONG • Immediately margin accretive at ~35% EBITDA margins and ~25% FCF margins FINANCIAL • Strong backlog and orders profile support forward momentum with existing and new PERFORMANCE customers, even in COVID environment • Further upside potential from elevated stimulus spending environment • Cash purchase price $1.6B, ~23.5x NTM EBITDA TRANSACTION • Immediately EPS accretive excl. amortization and other acquisition accounting charges SUMMARY • Projected closing date early FY21, pro forma 2020E Net Debt to Adj EBITDA* of 1.6x OSI Adds Software Technology Leadership in Power Transmission & Distribution to Market Leading Power Generation Franchise 9
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