Hexagon: Spin-off plan progressing with expanded scope

Hexagon has reconfirmed its prior plan to separate its Asset Lifecycle Intelligence (ALI) division and related businesses through a spin-off. The company also indicated it currently expects that the new separated unit will be listed on a US-based stock exchange. The scope of the spin-off has been expanded to include the entire Safety, Infrastructure & Geospatial (SIG) division, resulting in some 27% of total revenue being separated into the new company.

Proposed spin-off could take place in early 2026

The company’s release published on Tuesday provided lots of preliminary details about the proposed spin-off, which was first announced on October 25, 2024. The Board intends to propose the distribution and listing of the new company’s (“NewCo”) shares at a shareholder’s meeting in early 2026, if the circumstances are deemed right at the time. The plan to list NewCo on a US- based exchange was motivated in the release by the geographic focus of NewCo's business, history and the location of a management team. Hexagon plans to establish a temporary Swedish Depository Receipt program for NewCo to facilitate the transition.

Scope of NewCo expanded to include SIG in full

The separated unit, NewCo, will include both ALI and SIG divisions in their entirety, Bricsys’ CAD business (currently in Geosystems) and ETQ (currently in Manufacturing Intelligence), according to the latest plans of Hexagon’s Board of Directors. Earlier plans only considered parts from SIG, namely Utilities & Infrastructure segment, in addition to ALI, ETQ and Bricsys. After expanding the scope to include the whole of SIG, NewCo's revenue would amount to 1,448 MEUR with an adjusted operating margin of 31%. The size of the NewCo has thus increased significantly from roughly 1 BNEUR in the prior plan. NewCo will be a pureplay software and SaaS company that provides efficiency-improving planning, design and management tools to various industries.

Spin-off unlikely to trigger major revaluation

As we argued in our research report published on October 28th, we do not see the spin-off resulting in an immediate positive impact on the combined valuation of Hexagon and NewCo. NewCo is likely to trade at higher earnings-based multiples, owing to the high share of recurring revenue and lower cyclicality. On the other hand, the remaining Hexagon is likely to trade at relatively lower multiples compared to the group’s current valuation due to Hexagon's dependence on hardware and natural cyclicality. The split is also likely to result in increased admin costs for NewCo in the short term. The separation may, however, help the companies to improve value creation over the long term through a better strategic focus.