Commissions Complaint Alleged Acquisition Was Anticompetitive;Companies Were Worlds Largest Providers of Process Engineering Simulation Software
In an action taken to restore competition in the market for process engineering simulation software, the Federal Trade Commission has announced a consent order requiring Aspen Technology, Inc. (AspenTech) to divest the overlapping assets it obtained through its $106.1 million 2002 acquisition of Hyprotech, Ltd., its closest competitor in developing and supplying this specialized software. In August 2003, the Commission filed a complaint alleging that the acquisition was anticompetitive and seeking relief that would restore competition. The consent order, which addresses the Commission’s allegations, settles the charges and resolves the administrative court action, is subject to a 30-day public comment period.
The main requirements of the order include AspenTech’s sale of the Hyprotech process engineering software and the AspenTech operator training software business to a buyer that obtains the Commission’s prior approval and the sale of Hyprotech’s AXSYS integrated engineering software business to Bentley Systems, Inc. (Bentley), a technology firm that provides software for a variety of building, industrial, and civil engineering applications.
“This consent order contains strong relief to restore competition in this market,” said Susan A. Creighton, Director of the FTC’s Bureau of Competition. “The fact that the parties to an anticompetitive transaction were not required to file a pre-merger notification form and have consummated their transaction does not imply that the Commission will turn a blind eye. Parties bear the burden of restoring the competition that their transactions eliminated.”
AspenTech and Hyprotech
Founded in 1981, AspenTech is a for-profit corporation with headquarters in Cambridge, Massachusetts, that licenses software and provides related services, such as consulting, maintenance, and training. Before AspenTech acquired Hyprotech in May 2002, AspenTech’s customers included 46 of the world’s 50 largest chemical companies, 23 of the 25 largest petroleum companies, and 18 of the 20 largest pharmaceutical companies. AspenTech develops a variety of software products, including engineering simulation software, that it licenses to external clients. In fiscal year 2003, the company had total revenues of $323 million.
Until 2002, when it was acquired by AspenTech, Hyprotech, headquartered in Calgary, Canada, was a subsidiary of AEA Technology plc (AEA). Founded in 1976, the company’s clients included 14 of the world’s 15 largest petroleum companies, 13 of the top 14 chemical companies, eight of the top 10 pharmaceutical companies, and all of the top air-processing companies. Like AspenTech, Hyprotech developed and supplied simulation and optimization software for use in industrial applications. In fiscal year 2002, Hyprotech had revenues of approximately $68.5 million.
The Consummated Transaction
Before the acquisition, AspenTech and Hyprotech both developed, licensed, and supported continuous and batch process engineering simulation software. Batch process simulation models processes that have discrete production runs with distinct beginnings and ends. It differs from continuous process simulation, which models processes involving continuous flows. Continuous process simulation software models individual units or an entire process chain inside a refinery, chemical plant, or other process industry. Before the acquisition, AspenTech’s BatchPlus software suite included the leading batch simulator, with the BaSYS suite from Hyprotech second in the market. The companies also developed integrated engineering software to gather information generated from process engineering software and allow users to store, update, and retrieve data depending on their needs. Prior to the acquisition, AspenTech’s Zyqad was the leading application for these uses, and Hyprotech’s AXSYS was in development and ready for release to buyers, some of which had made commitments to purchase the product.
On March 10, 2002, AspenTech announced it was acquiring Hyprotech from AEA in an all-cash transaction. AspenTech consummated the transaction on May 31, 2002. Prior to the acquisition, AspenTech, Hyprotech, and Invensys Systems’ SimSci-Esscor division (SimSci) were the three leading providers of engineering process simulation software for process industries. Post-transaction, AspenTech’s share of the relevant markets for various engineering process simulation software was between 67 and 82 percent.
The Commission’s Complaint
Before the acquisition, AspenTech and Hyprotech were direct and actual worldwide competitors for the development, licensing, and support of process engineering software in the following markets: 1) continuous process engineering simulation flowsheet software for process industries; 2) continuous process engineering simulation flowsheet software for upstream oil and gas process industries; 3) continuous process engineering simulation flowsheet software for downstream refining process industries; 4) continuous process engineering simulation flowsheet software for chemical process industries; 5) continuous process engineering simulation flowsheet software for air separation process industries; 6) batch process engineering simulation flowsheet software for process industries; and 7) integrated engineering software for process industries.
According to the FTC, the acquisition allegedly significantly increased concentration in the relevant product markets, led to the combination of the two closest competitors, and left a combined AspenTech/Hyprotech as a dominant number one with only SimSci as a relatively smaller number two. Based on company estimates, the combined AspenTech/Hyprotech accounted for as much as 82 percent of the process simulation software market, with SimSci holding virtually all remaining sales.
Further, the complaint stated that entry into the relevant markets would not be timely, likely, or sufficient to deter or counteract the alleged anticompetitive effects of AspenTech’s acquisition of Hyprotech. The acquisition allegedly eliminated actual, direct, and substantial price and innovation competition between the two companies and gave AspenTech unilateral market power.
Terms of the Order
The order remedies the anticompetitive effects of the consummated transaction in the relevant markets by requiring AspenTech to divest the overlapping Hyprotech assets it obtained in 2003. The main divestitures include: 1) Hyprotech’s continuous process and batch process assets, along with AspenTech’s operator training software and service business, which will be sold to a Commission-approved buyer; and 2) the integrated engineering software business (Hyprotech’s AXSYS business), which will be sold to Bentley, subject to final FTC approval.
Under the order, if AspenTech is unable to sell the first set of assets to an acceptable buyer within the time required, the FTC may appoint a trustee to accomplish this divestiture within this time. In addition, the order assures the viability of the divestiture of the continuous and batch process engineering software by: 1) requiring AspenTech to divest its operator training software and services business; and 2) allowing customers with licenses to Hyprotech software to procure software maintenance and support agreements with the Commission-approved buyer without a penalty. The order also allows AspenTech to license the continuous and batch process engineering software back from the buyer to preserve product integrations that have occurred since the acquisition.
In acquiring Hyprotech’s integrated engineering software products, Bentley also will be provided with updates, upgrades, and new releases of AspenTech’s engineering and other products on favorable terms for five years. AspenTech also must provide Bentley with free support services for the AXSYS assets for two years to ensure that Bentley can create and maintain a product that effectively interfaces with AspenTech’s products.
Finally, the order contains terms to ensure the viability of both asset packages; specifies how both Commission-approved buyers may hire employees to manage the divested assets; requires AspenTech to publish and maintain software interfaces and technical standards; contains a provision that AspenTech will not enter into nor enforce any secret agreement with a competitor that has the purpose of impeding or obstructing the conduct or organizational structure of any standard-setting organization, and is inconsistent with the purpose of the order; and includes a standard divestiture trustee provision that can be implemented if AspenTech does not meet its divestiture requirements.
The Commission vote to accept the consent order and to place a copy on the public record was 4-0-1, with Commissioner Pamela Jones Harbour not participating. The order will be subject to public comment for 30 days, until August 13, 2004, after which the Commission will decide whether to make it final. Comments should be sent to: FTC, Office of the Secretary, 600 Pennsylvania Ave., N.W., Washington, DC 20580.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Copies of the complaint, proposed consent order, and an analysis to aid public comment are available on the FTC’s Web site at www.ftc.gov. The FTC’s Bureau of Competition seeks to prevent business practices that restrain competition. The Bureau carries out its mission by investigating alleged law violations and, when appropriate, recommending that the Commission take formal enforcement action. To notify the Bureau concerning particular business practices, call or write the Office of Policy and Evaluation, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580, Electronic Mail: firstname.lastname@example.org; Telephone (202) 326-3300. For more information on the laws that the Bureau enforces, the Commission has published “Promoting Competition, Protecting Consumers: A Plain English Guide to Antitrust Laws,” which can be accessed at http://www.ftc.gov/bc/compguide/index.htm.
(FTC File No. 021-0153; Docket No. 9310)
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