For Release:
August 7, 2003
FTC Charges Aspen
Technology’s Acquisition Of Hyprotech, LTD. Was Anticompetitive
Companies Were
Leaders in Development and Marketing of Process Simulation
Software for Use in Refining, Petrochemical, Pharmaceutical,
and Air Processing Industries
Alleging that Aspen Technology, Inc’s
(AspenTech) $106.1 million acquisition of Hyprotech, Ltd.
(Hyprotech) in 2002 was anticompetitive and led to the elimination
of a significant competitor in the provision of process engineering
simulation software for industry, the Federal Trade Commission
today authorized its staff to file an administrative complaint
challenging the transaction, which was exempt from the reporting
obligations of the Hart-Scott-Rodino (HSR) Premerger Notification
Act.
“AspenTech’s purchase of Hyprotech
directly led to the combination of two of the three largest
firms in the development and sale of certain process engineering
simulation software,” said Susan Creighton, Director
of the FTC’s Bureau of Competition. “Although
the fact that a merger has been consummated increases the
complexity of the Commission’s decision to seek relief,
that hurdle is not sufficient for the agency to forgo a challenge
to a transaction that is likely to lead to anticompetitive
effects.”
The Respondent Companies
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 acquiring
Hyprotech, its 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.
The company develops a variety of software products, including
engineering simulation software that it licenses to external
clients. In 2002, AspenTech reported a loss of $83.5 million
on revenues of over $320 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 oil refiners,
13 of the top 14 chemical companies, eight of the top 10 pharmaceutical
companies, and all of the top air processing companies. AspenTech
reported that in the year ending March 31, 2002, Hyprotech
had income of $4 million on $49 million in revenues. Like
AspenTech, Hyprotech developed simulation and optimization
software for use in industrial applications.
The Consummated Transaction
Before the acquisition, AspenTech and Hyprotech
were both involved in the development, licensing, and support
of continuous and batch process engineering simulation software
for use by industry. Batch process simulation is the modeling
of processes that entail a single production run with a finite
beginning and end. It differs from continuous process simulation
in that the latter experiences an ongoing flow of product
inputs and outputs. Continuous process simulation software
models individual units or an entire process chain inside
a refinery, chemical plant or other process industry. Prior
to 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 that gathers information generated
from process engineering software and allows 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 committed buyers.
On March 10, 2002, AspenTech announced
an agreement to acquire Hyprotech from AEA in an all-cash
transaction worth $106.1 million. 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 controlled between 67 and 82 percent of the relevant
product market for various engineering process simulation
software.
The Relevant Product Markets
According to the FTC, prior to the acquisition,
AspenTech and Hyprotech were direct and actual competitors
worldwide for the development, licensing, and support of processing
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.
The Commission’s Complaint
According to the Commission’s complaint,
AspenTech’s acquisition of Hyprotech violated Section
7 of the Clayton Act and dramatically increased concentration
in the relevant product markets. The transaction led to the
combination of the two closest competitors in the product
markets, leaving a combined AspenTech/Hyprotech as a strong
number one and SimSci as a weak number two. Based on company
estimates, the combined AspenTech/Hyprotech holds as much
as 82 percent of the process simulation software market, with
SimSci holding virtually all the remaining share of sales.
Also, according to the complaint, since the mid-1990s, SimSci
has been losing market share to AspenTech and Hyprotech.
Further, the complaint states that entry
into the relevant product markets would not be timely, likely,
nor sufficient to deter or counteract the alleged anticompetitive
effects of AspenTech’s acquisition of Hyprotech. The
acquisition also allegedly has eliminated actual, direct,
and substantial competition between AspenTech and Hyprotech
which, prior to the transaction, had the ability and incentive
to compete but no longer do so. The complaint also states
that the acquisition has led to reduced innovation competition
in the relevant product markets and may lead to the exercise
of unilateral market power by AspenTech in these markets.
Proposed Relief
In filing its complaint, the Commission
is seeking to restore the competition lost through AspenTech’s
acquisition of Hyprotech. Accordingly, it is seeking: 1) the
divestiture of all Hyprotech software, intellectual property,
contract rights, and other necessary assets; 2) the provision
of any incentives necessary to provide any engineering talent
necessary to the viability of the restored company; 3) the
assignment to the buyer of any Hyprotech contracts and the
recission and assignment of any Hyprotech product contracts
entered into since May 31, 2002;
4) the destruction of any copies of Hyprotech intellectual
property, including source code and executable code; 5) an
agreement not to use any Hyprotech competitive or technological
information gained since its acquisition by AspenTech; and
6) any other relief required to remedy the anticompetitive
harm caused by the acquisition.
The Commission vote authorizing the staff
to file the administrative complaint was 4-0-1, with Commissioner
Pamela Jones Harbour not participating.
NOTE: The Commission issues
or files a complaint when it has “reason to believe”
that the law has been or is being violated, and it appears
to the Commission that a proceeding is in the public interest.
The complaint is not a finding or ruling that the named parties
have violated the law. The administrative complaint marks
the beginning of a proceeding in which the allegations will
be ruled upon after a formal hearing by an administrative
law judge.
Copies
of the Commission’s complaint are available from the
FTC’s Web site at http://www.ftc.gov
and also from the FTC’s Consumer Response Center, Room
130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580.
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: antitrust@ftc.gov;
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.
MEDIA CONTACT:
Mitchell J. Katz,
Office of Public Affairs
202-326-2161
STAFF CONTACT:
Peter A. Richman,
Bureau of Competition
202-326-2563
(FTC File No.: 021-0153)
(http://www.ftc.gov/opa/2003/aspen.htm)
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Related
Documents:
Docket No. 9310
In the Matter of Aspen Technology, Inc.
- Text
of Administrative Complaint
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