The clanging of the opening bell for stock trading in New York on September 23, 2020, began a series of whirlwind days for Bentley Systems (listed as BSY on Nasdaq) CEO Greg Bentley. He was interviewed by dozens of mainstream and financial news outlets — including Geospatial World, and at least one other AEC industry publication. The IPO was greatly outpacing expectations, nearly doubling the originally envisioned price per share and sustaining solidly in subsequent days.
The days leading up to this rather unusual IPO — at least in terms of AEC — were filled with a lot of speculation from the financial press about the timing, and the overall corporate strategy. Was it prudent in this volatile market? Was it related to rumors of buyouts? Here at Geospatial World, we joined in the din of speculation, not so much about the financial dealings, but more about what this IPO might hold for the company, and the AEC industry. Leaving the numbers game to the financial publications, we wanted to follow up and ask Bentley Systems more of industry specific questions.
I interviewed Greg Bentley the day after the IPO. His responses revealed that the decision to do an IPO now was not driven by some complex market strategy or posturing, but by the values of this family run business, and to help fill a specific need in the ongoing digitalization of AEC.
Bentley Systems is a bit unique in the AEC space. It has been family run, by five brothers at one point and four at present, since its incorporation in 1983 by brothers Keith (currently EVP, CTO, and board director), and Dr. Barry Bentley (board director). They were joined later by Raymond (EVP and board director), and Richard (Scott), who has moved on to start several successful companies. Greg, CEO and board chairperson, joined in 1991 after heading a successful tech company.
It should be noted that the stock offered in this IPO is Class B stock, whereas much of the Class A stock is held by the family.
GS: Lay people like myself picture an IPO as an entire company going public, but as I understand, this was a limited offering.
The only shares that were sold were by long-time employees. The company did not sell shares and the Bentley family did not, other than brother Scott, who has not been involved in the company very recently. That meant it was a relatively small offering — all the shares that were wished to be sold by our colleague shareholders who, over time, have accumulated about one-third of the ownership.
With an issuing of stock options over time, we have explicitly committed that not only will we be able to build up a substantially valuable stake for our colleagues and shareholders, but they also know that they would end up with a market-determined price for the shares than what the company would pay.
GS: Bentley Systems is quite big now; close to $6 billion prior to the IPO, and now close to $9 billion. It is sometimes the case that after a successful IPO, a company might be the target of a takeover bid. And of course, there are always rumors.
GB: We are investors ourselves, you could say, the Bentley family. We have a fiduciary duty, including to our new investors, to consider anything that comes along. You will see that we have built a dual-class structure where one class of shares gets more votes. The family’s economic interest is about two-thirds, but we have about 84% voting interests, so there won’t be any acquisition interest from hostile acquirers. Our users can be assured of continuity, which always has been our hallmark.
This past week, we had roadshows with largest investors, and our premise is how they regard the digitalization opportunity in AEC. Because that, I think, is what you are seeing reflected in the avid interest in the stock.
GS: Part of my motivation for writing about this IPO in advance, and this post IPO interview, was that I also sensed a recent shift in the AEC industry. I have been looking at quarterly earnings of various geospatial businesses and I saw where, for instance, this year saw a dip in certain areas, but the areas that rose were in sales of software for collaboration. And perhaps that the pandemic has been a force multiplier, driving many firms to accelerating adoption of collaboration and project management tools. Is this what you are seeing?
GB: I like to say that every engineer has been virtualized. We had been helping with ProjectWise for firms to do global work sharing, and to be able to move their work to where the talent is. Now that engineering has been virtualized, firms can work on global projects anywhere, and I hope that will increase the ambition for globalization for AEC professions.
However, interestingly, a premise from our perspective is that infrastructure engineering professions, including civil, structural, and geotechnical, spend less per engineer on engineering software by a multiple, than product engineers in manufacturing. That caught the attention of the investors. Because, of course, the engineers cost the same and infrastructure costs more, and infrastructure engineers are a large percentage of all engineers. But compared to what is spent on software, infrastructure is a small percentage. All the intelligence, the fitness for purpose, and advancements depend on the software — that is how the professionals express their creativity.
That had the full attention of the investors, and I think they agree with the premise that there has been underinvestment in infrastructure software compared to product engineering. Of course, there does exist infrastructure engineering software companies with 11-figure market capitalizations. Not until yesterday when we briefly cracked $10-billion market capitalization.
A lot of volatility is expected in the beginning as the only shares offered were those that our colleagues wished to sell. It is a thing that will float, and it’s going to jump up and down — more likely than for most IPOs. It’s an unusual software IPO. Not only are we mature and predictable and can assure investors of our continued growth, but we generate cash and also pay a regular dividend, which is almost unheard of for US software stocks. It is not unheard of in Europe, but we really think that international investors especially will be attracted to this.
GB: We feel that we are attractive especially to investors who have a commitment to environmental, social, and governance issues. This is increasingly very common in Europe — there are a lot of funds earmarked for that, and the notion that we could all be concerned about climate and talk about it, but it actually is the work of infrastructure engineers to make a difference. Projects that matter and can move the needle toward net-zero require our whole portfolio. If they are hydro projects, or offshore wind farms, or updating the electric grid, it flows in two directions now; with renewables and storage, it is possible now. But you can’t model those correctly without an ambitious Digital Twin approach. We could say that Digital Twins consider everything. So, everyone is interested in that premise. Another premise that attracts investors interest is industrialization.
GS: For several years now, you have spoken of ‘constuctioneering’, a term I believe you coined, that is to say a way to bring engineering efficiencies to infrastructure development, construction, and operations, much in the manner that manufacturing has already done. Is the digitalization of AEC moving in that direction?
GB: The strategy in Asia, as you know, is modularization and standardization. One of the winning projects at our last Year in Infrastructure Conference was a new factory that builds factory modules. Not everything needs to be different — trends to more modular infrastructure can come more rapidly in, for instance, China as they have an amalgam of public and private in ownership and investment. But it can happen anywhere.
Another theme that we found caught the investors’ interest was that in product engineering, all the work of the product engineers — and there is only half as many of them in the world as there are infrastructure engineers — involves substantial research and development. So, of course, for manufacturing companies, product R&D is the focus. In infrastructure, who does the R&D? Most of the engineering and construction firms do not have any explicit R&D function; and don’t carry any intellectual property on their balance sheet. Further, owner operators, if they are government agencies like departments of transportation or water agencies, also don’t have digital R&D functions. So, you can think of us as providing the R&D for going digital.
As I like to say, we can push but we can’t pull. And that is why things have been slow. Infrastructure is behind manufacturing and product engineering on software spending in going digital generally.
GS: Circling back to the IPO, a big question we wanted to know is why now, especially in this current volatile market?
GB: The reason, frankly, was that more and more of our colleagues are reaching retirement and are going to benefit from the funds that they’ve invested in the company stock along the way. We last filed to go public in 2015 and earlier in 2002. In 2015, the window closed. That was the reason not to put it off any longer. We are surprised to be doing it in 2020. And no, no one thought that it would open as it had.
GS: If I could outline a premise, and see if you think I am on the right track… We have a global infrastructure boom, maybe it is on a little pause, but once it resumes, it’s a tsunami. We are never going to be able to pull it off with legacy tools and services. The collaboration tools, the digitalization, will bring this as it has in manufacturing. It must happen, and people recognize that, and people need the tools to do that.
Exactly, and one thing we hope to accomplish is now that we have a higher profile in the market, I want to use that for us to get better at marketing on behalf of civil engineers, structural engineers, surveyors, geotechnical engineers, and many more. I want us to highlight the value of their work and why it’s the highest and best use to help, support, and accelerate that.
GS: Accelerating the profile of geospatial and digital AEC that is already happening, as the urgency in meeting the need for infrastructure development and modernization, has risen in national and global conversations. How can we, the geospatial and AEC press best present this?
GB: It’s wonderful. I see it getting better all the time. I said to Sanjay Kumar (Founder and CEO at Geospatial Media, and Editor-in-Chief of Geospatial World) that he should change from the term GIS to geospatial. Then I said that infrastructure lies ahead next, so change the focus to infrastructure. Because I said in GIS, the ‘G’ stands for Google, by which I simply meant that it’s going to be mainstream and part of everything. It isn’t going to be a separate system or something you have to look to find; it is and deserves to permeate everything. It is this notion of 3D and 4D where it is the occupancy of time and space — recognizing that will be for everyone’s benefit.
GS: Now that your value of your company has gone up, this means your ability to attract resources has as well. What is the big area of focus moving forward? I talk to Keith (Bentley) every year at the Year in Infrastructure event, and it is all about Digital Twins, dynamic models, and distributed ledger models, etc. Is digital twinning THE focus right now?
GB: Yes, we think it’s so easy to understand Digital Twin instead of some other term or acronym. There was GIS, before that was CAD, and now BIM, and so forth. Digital Twin as a term better expresses the benefits, rather than just the how. So, I think we will forever be talking about Digital Twins and doing better in realizing the vision of that.
We plan to attract more resources with better people, and by building a higher profile. That includes focusing more on our part on marketing as we have always gotten the engineering part pretty well. And we are always applying ourselves there. We should focus more on marketing, including the Digital Twin, thought leadership. Because the great thing about selling to infrastructure owner operators is that they don’t compete with one another so directly. For instance, the metro system in Pune [India] doesn’t compete with a metro system in Jakarta [Indonesia]. They want to share good ideas, but they have to know about it. We can help with that. And you can help with that, frankly, in the geospatial press, especially being as global as you are.
But for me, I never cease to be fascinated with what I call 3D surveying and 4D surveying. It includes the notion that we think now of drones, and all manner of mass data collection, which is remarkably interesting. There was a front-page article in the Wall Street Journal a few weeks ago about the Ford factories that have robots crawling around, and all they do is take pictures. This gives a continuous representation of reality, currency of their operations, and in their Digital Twins. We were the Microsoft Partner of the Year in 2018 and 2019 for the category called City Next. This year, we are the Microsoft Partner of the Year in the US for the automotive sector, which is for HoloLens 2 and our SYNCHRO for the construction model in the Tesla Giga-factory plants — something that has the whole world’s attention. Tesla says their key success factor is how fast they can complete and stand up these Giga factories. And Elon Musk is saying it is the best use of the HoloLens 2. We will have to do more marketing of that kind of thought leadership.
In those same factories, they have imaging robots crawling around… The notion is that the cameras will be ubiquitous, and you can have continuous surveillance, it all seems very intriguing to me. As an example, I want to mention one of the projects that you will see in Year in Infrastructure 2020 Awards in October. In Korea, there is a proof of concept to use video to watch the bridge as the vehicles go over it. Then, it machine-learns what the structural model condition is without having to instrument the bridge with strain gauges. Structural monitoring just from video may only cost $10,000 per bridge. That is the sort of thing you can do just from video. I find this really intriguing, and surveyors and construction firms could also benefit from such technologies.