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Advisory Update on E2open’s Acquisition of Terra Technology

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A week ago today, Supply Chain Matters broke the news regarding the acquisition of product demand sourcing provider Terra Technology by E2open. According to the announcement, the combination will provide the opportunity for E2open trading network members to have the ability to access real-time product demand signals directly from the end-to-end supply chain network.

Since little had been shared up to last week’s announcement, this independent industry analyst reserved any opinion or customer advisories until having the opportunity to secure a briefing relative to what led up to the announcement and how this acquisition fits with long-term strategy.

Shortly after publishing our commentary, we heard directly from Michael Farlekas, CEO of E2open and indeed, we were able to secure a briefing earlier this week. We thank Michael for his prompt response. Based on that exchange, we can now share some additional advisories regarding the opportunities and consequences of this deal.

First and foremost, this was a strategic acquisition for E2open.

After the firm was taken private by Insight Venture Partners in February of last year, efforts were taken to reduce the overall cost structure of E2open which included moving corporate headquarters from Silicon Valley to Austin Texas. Leadership across most of the senior management ranks has since changed and according to Farlekas, cost trimming efforts were initiated resulting in the company now trending towards positive EBITA earnings. The next order of business was to augment E2open’s synchronized supply chain execution platform with stronger capabilities in supporting product demand planning and sensing.  Hence, eyes turned towards the opportunity to acquire Terra Technology.

More importantly, Terra augments two other strategic needs.

First, Terra’s strong presence with high profile consumer product goods producers such as Procter& Gamble, Campbell Soup, Con Agra and Unilever, among others, potentially broadens E2open’s abilities to support process manufacturing supply chain needs where the emphasis is more concentrated on the complexity of supporting complex distribution channels. As our readers are often aware, demand planning and demand sensing are rather important competencies required in managing a consumer packaged goods focused supply chain network.  The opportunity provided by this acquisition are the abilities to sense point-of-sales or channel product demand changes on the B2B business network platform and integrate demand signals to inventory planning, replenishment and customer fulfillment actions.

Obviously, another component of this deal rests in business development and sales strategy. E2open gains access to very influential CPG companies for the opportunity to further support their supply chain end-to-end process needs. Most of Terra’s customers utilize large scale ERP backbone systems, primarily SAP, thus they gain the opportunity to assess a different B2B supply chain network option. Many turned to Terra for product and process demand sensing support because of their perceptions that SAP was lacking adequate or timely support in this area.  In essence, they were practicing an SAP ring-fence strategy depicted in the book SAP Nation by Vinnie Mirchandani. Terra Technology can be deployed in either a Cloud-based or behind-the-firewall implementation strategy.

Terra Technology itself gains the benefit of a larger sales and support team to increase its sales growth and market penetration as well as compete more aggressively with other supply chain planning and predictive analytics providers. The provider has been hampered in growth by a perceived lack of investment in sales and marketing resources. We were informed that Robert Byrne, Terra Technology Co-founder and CEO will stay on with the acquisition.

As with other acquisitions among software providers, the real importance and benefits of such marriages come with the subsequent integration of technology, people and business process expertise of the combined teams.  We advise customers of both of these technology providers to sit back and assess the overall integration that has the potential to bring together augmented demand planning, process simulation and scenario planning, multi-echelon inventory optimization and synchronized execution across a contiguous supply chain B2B network platform.

The strategy is by our lens, solid, but requires dedicated resources and efforts from two companies that have been operating in lean, slimmed-down profiles. Look for signs as to further investments in program talent, development and customer support. The other watch out is obviously any change in pricing strategy. Overall however, we view upside potential in this marriage if carried out successfully.

After our briefing discussion, this analyst is more convinced that the market can expect other acquisitions from E2open as the company and its venture backed investors moves forward with a broader strategy for end-to-end supply chain platform business process support that umbrellas both more responsive and predictive based planning with synchronized supply chain customer fulfillment execution across multiple supply chain profiles. As that occurs, the pressure toward further consolidation among the up and coming supply chain best-of-breed technology segment will increase since long-term growth strategies are quickly moving away from IPO towards strategic link-ups.

One final observation we can share with our readers and clients. The E2open and Terra link-up places even more pressure on supply chain planning provider Kinaxis to broaden its responsive planning capabilities with added support for synchronized fulfillment execution. The pressure to be an acquirer itself or deeper strategic partner is building

Bob Ferrari

© 2016 The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.


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