Siemens will buy Altair Engineering for $10.6 billion, the American engineering software firm said on Wednesday, as the German company seeks to strengthen its presence in the fast-growing industrial software market.

The offer price of $113 per share represents a premium of about 18.7% to Altair's closing price on Oct. 21, a day before Reuters first reported that the company was exploring a sale.

The deal for Michigan-based Altair is Siemens's biggest acquisition since Siemens Healthineers bought medical device maker Varian Medical Systems for $16.4 million in 2020.

Altair, whose simulation software helps predict how products would work in the real world, fits Siemens's strategy of using its hardware and software to combine the real and digital worlds.

The German maker of trains and factory equipment has been trying to expand beyond its traditional industrial customers by boosting its digital offering to improve the performance of its production lines, trains and buildings.

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

It will also increase Siemens' digital business revenue by about 8%, adding approximately 600 million euros ($651.36 million) to the company's digital business revenue in fiscal 2023.

The transaction would have a revenue impact of about $500 million per year in the mid-term and more than $1 billion per year in the long term, Siemens said.

Siemens competes with Rockwell Automation, Emerson Electric and ABB in the industrial software market which is currently worth an estimated $21.5 billion annually.

Industrial automation is one of the core businesses within Siemens. CEO Roland Busch has said he wants to expand the software side of the business, although he has previously said he preferred small deals.

CFO Ralf Thomas said in an interview last month that Siemens wanted to gain a stronger foothold in factory automation in the United States to offset weakness in China, adding that Siemens was interested in software acquisitions.

Separately, Altair reported a 13% rise in third-quarter on revenue to $151.5 million.

Engineering software companies have become attractive acquisition targets as investors bet on companies that could benefit from the boom in artificial intelligence.

In January, chip-design company Synopsys agreed to buy design software firm Ansys in a $35 billion cash-and-stock deal.

($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)