PARIS, France: Schneider Electric is making its biggest acquisition ever, agreeing to pay around US$22.6 billion for U.S. software company PTC as the French engineering group expands its data center business amid booming demand.

Schneider shares fell nearly 10 percent in early Paris trading on October 5 as investors weighed the size of the acquisition, the large premium offered for PTC shares and the outlook for software company valuations amid AI-related market uncertainty.

Schneider shares had gained 29 percent through the close on October 2, before the October 5 decline erased nearly 15 billion euros ($17 billion) from its market capitalization.

"AI disruption fears are still weighing on software valuations, which allows acquiring PTC at a decade-low valuation but could still weigh on Schneider post-deal," Jefferies said in a note to investors.

Berenberg analyst Nay Soe Naing told Reuters the deal presented a healthy valuation amid a compressed valuation environment and challenging investor sentiment across the software sector.

PTC shares jumped 34.4 percent in U.S. premarket trading.

Schneider, once known primarily for industrial components such as fuses and circuit breakers, now builds the backbone of data centers, supplying cooling units, server racks and critical power distribution equipment.

Buying PTC would expand Schneider's industrial software and AI business by adding the Boston-based company's product-design and lifecycle-management software.

Schneider CEO Olivier Blum told investors that PTC's engineering and design data would strengthen the company's ability to deploy AI across customers' industrial operations.

"Data is becoming a very critical layer" for extracting value from AI, as the technology requires closer links between data and the software that contextualizes it, Blum said on the conference call.

The combination would lift Schneider's software-as-a-service revenue to about 24 percent of group total, accelerating its move beyond electrical equipment and automation into higher-growth, recurring-revenue software, he added.

Booming demand for data centers, particularly from the U.S., has been driving Schneider's earnings and providing a growing revenue source that helps offset weakness in some traditional electrical-equipment markets.

PTC provides software for designing, manufacturing and servicing products across multiple sectors and has also benefited from growing demand for its AI-powered tools.

The deal follows Schneider's June agreement to buy Cognite Holding, a privately held provider of AI software and industrial data.

The PTC transaction would be Schneider's largest-ever acquisition and one of Europe's biggest this year, according to LSEG data.

It would be financed through five billion euros to six billion euros in new shares under an existing shareholder authorization and 16 billion euros to 17 billion euros in new debt.

The $205-per-share offer implies an enterprise value of $23.7 billion for PTC and represents a 42.3 percent premium to its last closing price.

Schneider expects the deal to generate 250 million euros in annual run-rate cost savings by the third year after closing, along with about 800 million euros in revenue synergies.

The acquisition is expected to close by the third quarter of 2027, subject to approval from PTC shareholders and regulators.

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