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Supply Chain Matters First Impressions Regarding RedPrarie/JDA Software Merger

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On Tuesday, Supply Chain Matters commented that something was up at supply chain planning technology provider JDA Software, and that an announcement could come soon. On Thursday we issued a breaking news commentary indicating that privately held supply chain execution technology provider RedPrairie and JDA Software announced intent to merge into a combined supply chain planning and execution powerhouse with revenues extending beyond $1 billion.  The market was taken by total surprise and perhaps many employees at both companies as well.

The open question is- what’s this all about?  The reactions will be different and the views diverse, but one thing is certain, the dynamics of the supply chain technology market have changed.

In this commentary, Supply Chain Matters will provide our initial first impressions regarding this announcement after participating in a follow-on industry analyst briefing yesterday.  Clearly, not all information behind this proposed merger is ready to be shared, at least publically, and that should be the caution.

Readers should keep in mind that the deal is still subject to a tender offer to JDA shareholders, which is anticipated in the December time period. If the tender offer does not yield a required majority, a JDA shareholder vote could extend the timeline to early 2013.   According to the press announcement a cash tender offer of $45 per share, representing a 33 percent premium to JDA’s stock price on October 23, will be extended. The total value is estimated to be $1.9 billion.  The considerable premium included in the offer was likely engineered to make the tender offer process more attractive.

JDA has a long history of acquisitions, the most notable being the original supply chain planning icons of Manugistics and i2 Technologies. At the time of the final i2 Technologies acquisition announcement from JDA, one of the other suitors was rumored to be RedPrarie itself.  JDA is still in the process of integrating these two platforms, and CEO Hamlish assured us that the upcoming JDA 8.0 Release scheduled for Spring will have both platforms working together in a termed 100 percent cloud-based environment. Of late, JDA has been dogged by some regulatory inquiries regarding the disclosure of previous financial results. On Monday, JDA was scheduled to release its Q3-2012 Quarterly Results but postponed the release supposedly due to the Northeast storm.  On the day of the merger announcement, JDA released its September ending results reporting declining software and subscription revenues and profits. Net Income in the first nine months declined 66 percent from a year earlier, and reflected $12.5 million of costs associated to the revenue recognition investigation and 2012 restatement.

RedPrairie itself was acquired in 2010 by New Mountain Capital, and has since completed a number of other acquisitions to include innovative cloud-based WMS provider SmartTurn, SofTechnics Shippers Commonwealth, Escalate, and Vortex Connect.  RedPrairie’s existing technology capabilities support warehouse, distribution and retail fulfillment with vertical industry customer composition evenly divided among Industrial / 3PL and Distribution, and Retail Industry based clients.

The obvious fundamental question is why a privately held company, with approximately $300 million in revenues will absorb a publicly-held company with roughly $700 million in revenues.  In our view, readers should context this proposed merger to be a private equity based financial engineering strategy where two companies are brought together under a private ownership structure to form a different mission and set of objectives. In a simplistic sense, it is  a private equity based playbook transaction that allows enhancement of the best of both companies, a leveraging of cost control synergies and a re-positioning of mission, goals and objectives. Readers may also recall that i2 had previously been successful in a patent lawsuit concerning SAP, which adds IP assets as another consideration of this merger, not to mention the combined IP assets among both companies.

In the industry analyst briefing, current JDA CEO Hamish Brewer and existing RedPrairie CEO Michael Mayoras did not share many details, indicating that this deal happened quite fast and there has been no opportunity as yet for either management team to dive into the specifics of a combined company. There was however, lots of enthusiasm.  What else could one expect at this point!

CEO Brewer views RedPrairie as a natural fit for JDA, and both CEO’s dwelled on the potential to bring combined supply chain planning and execution support capabilities to existing retail, consumer goods and industrial manufacturing clients. There was considerable emphasis on the opportunity to provide the market broader support for Omni-Channel commerce and supply chain fulfillment processes, which for this author, reinforced that there will be targeted vertical industry objectives included in the strategy of the combined companies. This author probed on the basis of a further manifestation of a combined planning and execution cloud-based B2B platform but both CEO’s indicated that there has not been time as yet to consider such objectives. Both CEO’s acknowledged that there would be obvious overlaps in the transportation management and planning segment which will have to be addressed for customers.

Turning the lens toward New Mountain Capital, they are a New York based private equity firm holding a rather interesting portfolio of companies that include healthcare, services, software and supply chain service needs. We probed their web site for common themes among portfolio companies and one theme appeared common- a strategy of investing in companies that offer outsourced or market disruptive services.  Companies such as SymphonyIRI Group providing consumer and retailer point-of-sales data, Intermarine that provides asset-light logistics, Inmar Inc. that provides reverse logistics services and others point to this basis of investment strategy theme.  That may provide a clue as to the motivations for creating a merged JDA/RedPrairie capability.

One thing is certain, this announcement will change the dynamics of the supply chain management best-of-breed landscape in the months to come, regardless of the outcome of this merger. Expect more partnering and/or consolidation among pools of vendors. If the end-play turns out to be cloud based software coupled with end-to-end outsourced services, than the market should expect further dynamics to occur in the B2B outsourced services segment.

Another important consideration is that process objectives among supply chain planning and execution processes are somewhat different, along with the organizational cultures, and that will be very important for the proposed merged entities to realize in their integration and go-to-market strategies. Just ask Manhattan Associates who attempted a similar feat. A lot has changed among both sides of supply chain management.  Clearly the need for fusing both processes is compelling, but the implications are far-reaching and much more centered on advanced decision-support, business intelligence and supply chain control like  capabilities and organizational skill requirements. When JDA initially acquired i2, it failed to recognize the unique, broad-based planning and analytical capabilities that was within the i2 offerings.  The first declared strategy was to facilitate a CD based go-to-market strategy, ignoring the reality that many i2 customers customized their planning processes to enable industry differentiation. JDA quickly changed that perspective when customer realities were discovered.

The merger of JDA and RedPrairie is therefore not a cakewalk and will require bold vision, strong leadership, a firm hand, and certainly end customer input.

In the meantime, we continue with the advice that existing customers from both companies should be patient and await the full picture to evolve.

Bob Ferrari

 

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