A big complement
Supply chain software vendors RedPrairie, JDA merge to become “super best-of-breed” provider.
By Eric Johnson
If you listen to analysts, the supply chain software arena has been thirsting for a major roll-up of two complementary providers that could provide shippers more functions and fewer systems.
The pending merger between supply chain software companies RedPrairie and JDA Software might be just what everyone’s been waiting for.
The companies announced Nov. 1 that RedPrairie will acquire outstanding shares of JDA common stock in a $1.9 billion deal that will create a combined entity with annual revenue of more than $1 billion.
The merged entity will be led by current JDA Chief Executive Officer Hamish Brewer. RedPrairie’s CEO, Michael Mayoras, will remain on the board of the combined company.
The companies stressed their complementary strengths and customer bases in announcing the merger, saying that JDA’s strength lies as a leading vendor in the supply chain planning, merchandising, and pricing arenas, while RedPrairie is strong in warehousing, workforce management, store operations, and e-commerce.
The two companies overlap to some degree in the area of transportation management systems, but Mayoras said on a conference call that JDA and RedPrairie rarely compete for the same business.
In that sense, the merger represents a departure from some of the more recent acquisition activity in the supply chain software space, where companies tend to acquire smaller or niche competitors in a similar field in order to build their footprint.
In this instance, the merger not only allows the two companies to expand their customer bases, it allows those customers to integrate previously separate functions.
That’s something shippers have been actively seeking, according to American Shipper’s 2012 International Transportation Management Benchmark Study. The average retailer has narrowed its number of platforms from 4.1 to 2.9 in the last two years, while the average manufacturer has reduced it from 4.3 to 3.2 in the same period.
In a blog entry the day after the deal went down, Ian Hobkirk, president of Commonwealth Supply Chain Advisors, wrote the merger would take two best-of-breed vendors and turn them into a “super best-of-breed” provider.
Hobkirk said the combined JDA-RedPrairie could pose a threat to the ERP-based giants SAP and Oracle.
“Oracle and SAP — the dominant ERP providers — now have some hard choices to make,” he said. “Will they continue on their present course of improving their own supply chain execution applications — a slow process by most measures — or will they decide to make an acquisition of their own to compete with RedPrairie?”
Hobkirk said the combined functionalities of JDA and RedPrairie will be enticing to customers that have become frustrated by the need to purchase and implement multiple systems to cover different aspects of their supply chains.
“Companies with physical supply chains have been struggling for decades to reconcile the CIO’s desire for technology uniformity with the COO’s needs for functional operations applications,” he wrote. “The two camps have always had a hard time compromising. Top ERP companies have not had supply chain execution applications that can compete with the top best-of-breed products, but the best-of-breed world has been so fragmented that users have had to patch together multiple applications to achieve complete functionality. Applications like supply chain planning, warehouse management, transportation management, and store operations all had to be purchased from different providers and integrated back to an ERP system.”
That’s where SAP and Oracle have been able to benefit, slowly building their own supply chain capabilities while taking advantage of the fact that companies don’t want to stitch together a handful or more best-of-breed systems.
American Shipper publisher Jim Blaeser, it should be noted, pointed out that a major deal was likely in the offing in 2012, including the idea that JDA could be involved.
Rumors that JDA was shopping itself had surfaced a few days before the deal was announced, and the company’s stock price rose amid the rumblings.
“I was surprised it was RedPrairie buying JDA, and not vice versa,” Steve Banker, service director for supply chain management at the ARC Advisory Group, told American Shipper. “More recent rumors have said JDA would be sold, but the older scuttlebutt had the deal going the other way.”
RedPrarie’s offer of $45 per share was a 33 percent premium to JDA’s stock price on Oct. 26, a day after market rumors surfaced that JDA was exploring a sale. The offer price also represents a 16 percent premium to JDA’s all-time high stock price.
“This transaction generates tremendous value for JDA shareholders, offering them a meaningful premium for their shares,” Brewer said. “This is a strong combination of two leading companies with highly complementary product suites. It will give businesses the power to better manage global commerce through a new world of capabilities. The combined company will have a unique ability to address our customers’ increasingly complex needs with a full spectrum of solutions for planning and execution across the entire value chain.”
The companies stressed their combined strengths will meet the supply chain needs of “hyper-connected, mobile consumers” in the retail and manufacturing sectors.
“This merger establishes a company perfectly suited to meet the evolving demands of the ‘always-on’ mobile consumer,” Mayoras said. “Both companies have historically demonstrated their leadership in supply chain innovation. I look forward to committing myself to the success of this combined company because I believe it will provide extraordinary customer value.”
RedPrairie Chairman Alok Singh also stressed JDA’s proficiency in cloud-based applications.
“We believe that this combined company will deliver a strong ROI and extraordinary customer value for both B2B and B2C enterprises,” he said. “Both companies share a history of innovation, including JDA’s leadership in cloud offerings and RedPrairie’s strength in workforce management and e-commerce.”
American Shipper wrote about JDA’s expanded cloud strategy in May and its convergence strategy in January 2011.
JDA’s recent history is dotted with key transactions, including the 2006 acquisition of Manugistics and then its 2010 purchase of i2, both of which widely expanded JDA’s TMS footprint.
Banker agreed that the two companies are largely complementary.
“So there will be increased cross-selling opportunities,” he said. “TMS is the biggest product set offered by both companies. I’m guessing the JDA TMS will be the main solution sold in the market when new opportunities arise.”
The companies said they will work through their integration by the end of the year, when the deal is expected to close. Hobkirk said it’s hard to tell which brand will be retained.
“I am sure it will be one brand though, not two,” Hobkirk told American Shipper. “RedPrairie is a really strong brand for WMS/TMS. JDA doesn’t seem to have as much brand equity overall — total opinion on my part. I think acronyms never have the same brand retention as creative names. If I was betting, I would say RedPrairie.”
Brewer said in the conference call after the deal was announced that the two companies would integrate as many applications as possible onto one platform, with that platform linking back to an ERP system.
But that won’t necessarily be easy for existing customers of either company, even though Mayoras did indicate there are already many overlapping customers.
“Product integration is always difficult in these situations,” Banker said. “When a new common product set is achieved, moving to the new solution is more akin to a brand new implementation than an upgrade for an existing customer. That said JDA has a lot of experience in this area. The JDA/i2 integration went quicker and smoother than I expected.”
Considering that shippers have been clamoring for more effective end-to-end systems, perhaps the pains of integration will be easier to digest.
“After years of talking about e-commerce, e-fulfillment, and omnichannel, I do think the time is now for bringing a more holistic solution set to market,” Banker said. “Home Depot had a conference call for financial analysts in June where the sense of urgency for big retailers in this area came through. The biggest product holes are that neither RedPrairie nor JDA has a demand signal repository (DSR), although JDA has argued the DSR matters less than the analytics that ride on top of the DSR. And omnichannel requires much better store-level inventory accuracy. Will retailers buy what in effect is a light WMS for the store? RP does have such a solution but I don’t sense that retailers have been buying that type of solution.”
Hobkirk, in his blog, wrote that retailers stand to gain the most from the merger.
“Many of them are already using JDA applications for demand planning, merchandising, and store replenishment,” he said. “These applications would, in theory, be much more closely linked with execution applications like warehouse management, transportation management, and store operations for greater responsiveness to changes in the demand plan.
“Manufacturers, wholesalers, and 3PLs will benefit from having the option to use world-class warehouse management and global transportation management systems from the same company — somewhat of a first in the industry. Tighter integration between these applications can improve distributed order management and sourcing decisions.”
International shippers using JDA’s TMS, in particular, could stand to make huge gains in terms of visibility.
“JDA has very strong international transportation management capabilities, largely from the i2 and Manugistics acquisitions,” Hobkirk said. “They are probably one of the top three providers of software in this space. Companies that use these TMS platforms already will now (when the systems are fully integrated) have better integration into the yard, warehouse and domestic transportation side of the business.
“Integration equals visibility. So, greater end-to-end visibility of goods in the supply chain from the time they ship from a factory in Asia to the time they arrive and get received in the warehouse. Everybody wants better visibility into that chain of events.”
JDA is set for a new release in the second quarter of 2013, one that has a heavy focus on providing customers true international TMS capability. Among traditional TM vendors, JDA is in a small group that has been pushing the development of these capabilities.
The reality is that true international transportation management remains difficult for shippers to achieve, with those functions mostly handled by forwarders and 3PLs. While many vendors provide robust domestic applications, and even foreign domestic applications, the challenge is in optimizing cross-border movements, and especially foreign-to-foreign movements, involving multiple legs and multiple modes.
Earlier this year, the analyst Gartner included JDA in the list of the top five supply chain management vendors by revenue, alongside SAP, Oracle, Ariba, and Manhattan Associates.
Hobkirk predicted the next domino to fall may involve Manhattan.
“Look for at least one more though of this type in the next 12 months,” he said. “My prediction: Oracle or SAP buys Manhattan Associates.”
In his blog, Hobkirk explained why Manhattan might be ripe for acquisition.
“Manhattan has developed leading warehouse management and transportation management applications that are heavily used within the Fortune 500 community. Despite the continued dominance of these products, Manhattan may find it harder to compete with a company with a wider set of planning and retail offerings. A merger between Manhattan and a top ERP provider would present a credible reply to the new RedPrairie/JDA conglomerate.”
So why has it taken so long for a complementary deal like this to occur?
“My opinion is because they are much more expensive to finance,” he told American Shipper. “The mergers you see a lot of are ones where a company like Infor buys yet another WMS company that is on its way out and gets a good deal. Then they live off of the support revenue. You also see a lot of situations like the RedPrairie/Store Perform acquisition a few years ago. This could be classified as complementary but the company that got acquired was small compared to the parent company, and easier to pay for. This deal took a lot of money, and a lot of vision to pull off.”