Hexagon's Spin-off of Octave: A Strategic Move to Capture SaaS Growth and Unlock Value

In a bold restructuring move, Hexagon AB (HEXAB.ST) has announced the creation of Octave, a standalone software and SaaS firm, by spinning off its Asset Lifecycle Intelligence (ALI), Safety, Infrastructure & Geospatial (SIG), and related businesses. This separation, set to complete by mid-2026, marks a pivotal shift for Hexagon, which will shed its SaaS divisions to focus on core measurement technologies. For investors, Octave emerges as a compelling opportunity to capitalize on high-margin software growth, sector-specific tailwinds, and the potential for valuation re-rating once it becomes independent.

Strategic Rationale: Focused Growth vs. Hardware Efficiency
The spin-off isolates Octave's software-driven divisions from Hexagon's hardware-centric businesses, a separation that addresses a long-standing challenge for conglomerates: disparate valuation multiples. SaaS firms, particularly those with recurring revenue models and high margins, typically command higher price-to-revenue ratios than hardware companies. By splitting Octave into a pureplay SaaS entity, Hexagon aims to unlock value that may have been diluted under its current structure.

Octave's adjusted operating margin of 31% (as of 2024) underscores its profitability, which is critical for SaaS firms. This margin outperforms many industrial software peers, such as Trimble (TRMB) at ~20% and Autodesk (ADSK) at ~28%, suggesting Octave could trade at a premium post-spin-off. The 31% EBIT margin is supported by EUR 1.45 billion in annual revenue, with operations spanning 7,200 employees and a global footprint.

Market Tailwinds: Infrastructure, Safety, and Digital Transformation
Octave's software suite targets sectors primed for growth:
- Industrial and Public Infrastructure: Governments and corporations are investing in digital tools to manage aging infrastructure, optimize construction projects, and comply with safety regulations. Octave's solutions for design, construction, and asset management align with this demand.
- SaaS Scalability: Its recurring revenue model and cloud-based offerings position it to benefit from rising enterprise IT spending.
- Geopolitical Drivers: Global spending on critical infrastructure (e.g., energy grids, transportation) is projected to exceed $10 trillion by 2030, driven by climate policies and post-pandemic recovery.

The SIG division's expansion into full ownership, alongside ETQ's quality management software and Bricsys's CAD tools, strengthens Octave's portfolio. These businesses collectively address industries like mining, construction, and public safety, where data-driven decision-making is becoming a necessity.

Investment Timeline and Risk Considerations
The spin-off timeline hinges on regulatory approvals and market conditions, with a U.S. listing planned due to Octave's historical ties to Intergraph (a former U.S. public company). A temporary Swedish Depository Receipt (SDR) will bridge the gap until the full transition.

While risks include execution delays or a weaker-than-expected valuation post-listing, the strategic logic is clear. Hexagon's post-spin focus on measurement technologies (e.g., sensors, AI analytics) leaves it with EUR 3.95 billion in revenue and a 29% EBIT margin—still robust, but distinct from Octave's software-driven profile.

Investment Case: Engage Early, but Mind the Risks
For investors, the key question is whether to buy Hexagon now to secure a stake in Octave or wait for the standalone listing. Given the Lex Asea distribution mechanism, existing shareholders will receive Octave shares, making Hexagon a vehicle to participate in the spin-off. However, volatility around the separation could pressure HEXAB.ST in the short term.

Longer-term, Octave's standalone potential is compelling. If it achieves a valuation multiple comparable to Trimble or Hexagon's own SaaS segments (which currently trade at ~8x revenue), its EUR 1.45 billion revenue could imply a market cap of ~EUR 12 billion. This would represent a significant uplift from Hexagon's current enterprise value (EUR 15.7 billion), suggesting that the spin-off could unlock ~EUR 5 billion in standalone value for Octave.

Conclusion: A Strategic Play for Growth-Oriented Investors
Hexagon's spin-off of Octave is a shrewd move to capitalize on sector-specific tailwinds and unlock value through focused growth. The high EBIT margin, scalable SaaS model, and strategic market positioning make Octave a compelling investment thesis. While risks remain, early engagement—whether through Hexagon's shares or post-listing—could reward investors in a market hungry for high-margin software plays. As Octave prepares to debut in 2026, its software-driven future looks bright.