Hexagon's Strategic Divestiture and Spin-off of Octave: A Play for Undervalued Growth in SaaS and Industrials

Hexagon AB (HEXA.ST), a global leader in sensor, software, and autonomous solutions, has taken a bold step to unlock shareholder value by spinning off its Safety, Infrastructure & Geospatial (SIG) and Asset Lifecycle Intelligence (ALI) divisions into a new standalone software company, Octave. This move, set to finalize by mid-2026, marks a critical pivot for Hexagon to sharpen its focus on high-margin measurement technologies while positioning Octave as a pureplay SaaS player in infrastructure and safety software. With synergies in Octave's expanded portfolio, minimal revenue loss for Hexagon, and a strategic shift toward recurring revenue models, the restructuring could reposition both entities as undervalued opportunities in their respective sectors.

The Spin-off: A Sharpened Portfolio for Growth

The spin-off of Octave represents Hexagon's most significant strategic realignment in decades. By combining ALI and SIG divisions—along with subsidiaries like ETQ (quality management software) and Bricsys (CAD software)—Octave will offer end-to-end solutions for designing, building, and operating infrastructure assets. This creates a cohesive platform for sectors like public safety, transportation, and energy, where demand for data-driven decision-making is soaring.

Meanwhile, Hexagon's core business will focus on its measurement-technology strengths: autonomous industrial systems, positioning solutions, and sensor-driven analytics. This streamlined focus aligns with its leadership in markets like mining, manufacturing, and automotive, where recurring revenue models and hardware-software integration are key.

Financial Implications: High Margins, Minimal Pain

The financial rationale is clear. As of December 2024, Octave's 31% adjusted EBIT margin (vs. Hexagon's remaining 29%) suggests that separating the higher-margin SaaS operations could unlock value by aligning each entity with its appropriate valuation multiple. SaaS businesses typically command premium multiples due to recurring revenue, while industrial hardware businesses like Hexagon's core often trade at lower multiples.

The divestiture of non-core SIG assets—including IT services and ruggedized hardware—will shed EUR 90 million in annual revenue. However, this represents just 2.3% of Hexagon's total 2024 revenue (EUR 3,953 million post-spin), making the move a strategic trim rather than a core sacrifice.

Strategic Synergies and Market Tailwinds

Octave's expanded portfolio creates cross-selling opportunities. For instance, Bricsys' CAD software can integrate with ETQ's quality management tools to streamline construction workflows, while SIG's public safety software (e.g., Computer-Aided Dispatch systems) can benefit from ALI's asset lifecycle data. These synergies position Octave to capitalize on a growing market: global spending on infrastructure and public safety software is projected to exceed $10 trillion by 2030.

Meanwhile, Hexagon's focus on measurement technologies—such as autonomous industrial robots and real-time positioning systems—aligns with trends in digital transformation and Industry 4.0. These solutions are critical for sectors like advanced manufacturing, where recurring software subscriptions and hardware upgrades drive predictable revenue streams.

Risks and Considerations

The spin-off faces execution risks, including regulatory approvals and the potential for one-off costs as Octave operates independently. Additionally, the SaaS sector is crowded, and Octave's success will depend on its ability to compete with giants like Autodesk and Oracle. However, its deep domain expertise in infrastructure and safety software—built over decades—provides a moat.

Investment Thesis: A Dual Play on Undervalued Assets

For investors, the restructuring presents a compelling opportunity. Hexagon's stock, which has underperformed SaaS peers like Autodesk (NASDAQ: ADSK) over the past three years, could see a re-rating as its core business becomes clearer to investors. Meanwhile, Octave's standalone listing on a U.S. exchange could unlock value currently hidden within Hexagon's broader portfolio.

Action Items for Investors:
1. Re-evaluate Hexagon's valuation: The stock may now be undervalued given its streamlined focus and high-margin core.
2. Monitor Octave's SaaS potential: Its 31% EBIT margin and recurring revenue model suggest it could command a premium multiple post-listing.
3. Watch for catalysts: Regulatory approvals, shareholder votes, and market sentiment ahead of the 2026 spin-off could drive short-term momentum.

Conclusion

Hexagon's spin-off of Octave is a masterclass in portfolio optimization, separating two high-potential businesses to unlock value for shareholders. While risks remain, the strategic focus, financial clarity, and secular tailwinds in SaaS and industrials make both entities compelling buys ahead of their separation. Investors who reposition now could capture upside as the market revalues these undervalued assets.

The clock is ticking—2026 is just around the corner.