By John Revill

(Reuters) -Siemens is to buy U.S. engineering software firm Altair Engineering for $10.6 billion, strengthening its position in the growing market for industrial software.

The deal, Siemens’s second biggest acquisition, is part of the German engineering group’s increased focus on a sector being revolutionised by data analysis and artificial intelligence.

Michigan-based Altair is active in the product lifecycle management (PLM) industry – systems that manage product life-cycles from conception to development, manufacture, service and disposal.

The market for PLM simulation software is currently $10 billion per year and will grow by 10% over the next five years, Siemens said.

Following the deal, the Munich-based company will increase its market share from 9% to 15%, lifting it from number 4 to number 2 behind Ansys, which has 23%.

Other rivals include privately-held MathWorks with 14%, and Dassault Systemes with 10% of the market.

Siemens CEO Roland Busch said combining Siemens’ online digital platform Xcelerator with Altair “will create the world’s most complete AI-powered design and simulation portfolio”.

The transaction is anticipated to add to Siemens’ earnings per share in about two years from the deal’s closing, expected in the second half of 2025.

It will also add about $500 million in annual revenue to Siemens in the mid-term and more than $1 billion per year in the long term, Siemens said.

Analysts were cheered by the acquisition, but there were some concerns about the price, an 18.7% premium to Altair’s close on Oct. 21, a day before Reuters first reported the company was exploring a sale.

Analysts at Alpha Wertpapierhandel said the deal, while not cheap, would strengthen Siemens’ struggling digital industries division.

Jefferies analyst Simon Toennessen said the acquisition gave Siemens more expertise around artificial intelligence and high performance computers.

It would also make the group a more credible rival to chip-design company Synopsys, which agreed to buy Ansys earlier this year, as well as Cadence Design Systems.

Siemens also announced on Thursday it was selling its airport baggage and cargo handling business to Vanderlande, owned by Toyota Industries Corporation, for 300 million euros.

The company was the last portfolio company held by Siemens – a batch of company laggards earmarked for turnaround and sale because they did not fit the company’s focus on transport, factory automation and smart buildings.

($1 = 0.9211 euros)

(Reporting by John Revill in Zurich, Emma-Victoria Farr in Frankfurt; Additional reporting by Arsheeya Bajwa in Bengaluru; Editing by Maju Samuel and Jan Harvey)