Logistics technology: JDA set to acquire i2 Technologies
Deal would increase company's manufacturing presence, but analysts say it may face integration obstacles
Jeff Berman, Group News Editor -- Logistics Management, 8/11/2008
SCOTSDALE, Ariz. and DALLAS—In another example of consolidation that has impacted the supply chain software sector in recent years, JDA Software Group Inc., a provider of demand chain technology services, announced today that it plans to acquire i2 Technologies, a supply chain management software and services company, for approximately $346 million.
This deal marks JDA’s 11th acquisition in the last ten years, and it is expected to close during the fourth quarter of this year after the necessary approvals, according to a company statement. The acquisition of i2 is the largest one for JDA since its May 2006 acquisition of Manugistics for $211 million. The statement also noted that this “combined company creates one of the world’s strongest best-of-breed software solutions provider focused on the global supply chain for the manufacturing, wholesale distribution, retail and service industries” with a combined $635 million in annual revenues. The companies added that by combining JDA and i2, the resulting company will have significantly improved operating leverage and a strong financial position. And the near-term cost synergies identified in operations, general, administrative and infrastructure resulting from this combination are expected to produce annual cost savings of approximately $20 million, the companies said.
In a conference call with industry analysts and members of the media earlier today, JDA CEO Hamish Brewer said that this acquisition marks the “next logical step for JDA in its ongoing transformation and growth of the company.” He said it helps JDA become more firmly entrenched in the process manufacturing space, which it initially entered with the Manugistics acquisition as an extension of its strategy to become supply chain specialists. Adding i2 to the mix provides JDA with a presence on the discrete manufacturing side of the fence. When the deal becomes official later this year, JDA, through its original customers and those added by the Manugistics and JDA acquisitions will have approximately 1,500 retailers and 4,500 manufacturers and retailers-distributors comprising the majority of its customer base. Another three percent of its customers are comprised of clients in various service industries.
“The acquisition of Manugistics was transformative for JDA,” said Brewer. “It was the first time we got into manufacturing in a serious way with a much larger solution offering for that industry. JDA not only had to integrate Manugistics into our business…to build out the business it has today, it also had to introduce JDA to the manufacturing industry. This [deal] demonstrated our ability to execute on new kinds of transactions with strong results. While i2 represents another major step along the way for JDA, this, by comparison will be a more incremental acquisition by nature than a transformative one.”
Brewer also said that the acquisition of i2 is very consistent and complimentary with JDA’s existing operations and also consistent with JDA’s ongoing strategy and expands its capabilities in the transportation and retail markets as well.
While JDA’s Brewer is bullish about what i2 can bring to the table for JDA, some industry analysts told LM that there are some factors regarding the deal that will make it unclear—at least in the short-term—how successful it will eventually be.
Bob Parker, vice president of Manufacturing Insights, said in an interview that the deal gives JDA added scale when going up against the duopoly of ERP titans SAP and Oracle, but he cautioned that Manufacturing Insights is not particularly optimistic that JDA, based on its experience with Manugistics, is going to invest significantly enough to satisfy the i2 install base.
“The i2 user base, which has been very loyal and i2 has delivered a lot of value to them over the years, were willing to be patient while i2 sorted things out, and I think there was an expectation that at the end of the process there needed to be a vision for new investment and things needed going forward,” said Parker. “But I am just not convinced that JDA is the right company. We have advised our clients to have a replacement plan in place [if needed] that they can execute. It is not a panic situation, but the long-term plans of shippers need to look at alternatives from either their ERP provider or some of the specialists that serve the needs of their industry.”
Parker also noted that while JDA has shown some vision for where they want to take some of their products for manufacturing as opposed to retail, but he said there has not been enough execution to date. JDA software is installed in a lot of SAP environments, which he said may lead some shippers to shift over to SAP Business Objects because of functional parity and integration advantages.
“Where [JDA] has had new sales with the integration of Manugistics, it has been more interim investments by shippers currently using Manugistics and needing to add another module before JDA acquired it, but eventually they may migrate off and go to their ERP provider or a specialty provider more focused on specific industries,” said Parker. “i2 is that same problem exacerbated, because i2—although it has a presence in retail and consumer packaged goods—has its roots in discrete manufacturing, high tech in particular, and then diversified into industrial, automotive, aerospace and more discrete markets. And I think it is going to be an even bigger challenge from an expertise perspective for JDA to go out and meet with its install base, although there are now i2 folks that can do that.”
A battle of platforms: AMR Research vice president of research John Fontanella said that these types of acquisitions are necessary for companies like JDA, Manhattan Associates, and RedPrairie to compete with the larger ERP players like SAP and Oracle. He said the reason for this is that the supply chain software market has become a battle of platforms, as opposed to a battle of individual functionality.
If a shipper has a supply chain vendor, regardless of size, needs integrated warehousing, transportation, and labor management planning, among other features, explained Fontanella, it may choose to have two IT platforms rather than one.
“A shipper may have already given up on the idea that SAP can provide the near-term, near-future supply chain functionality needed,” said Fontanella. “So it will compromise and bring in another platform, but it does not want to keep bringing in best-of-breed applications, because its application portfolio becomes too complex to manage and will have integration problems. And that is how the Manhattans and JDA’s are competing with SAP and Oracle; they are looking more like them. There is a lot to say about good, functional applications sitting on a common platform.”
As both Parker and Fontanella point out, there are various potential obstacles—like switching costs, human capital, time and money—with acquisitions like this that some shippers may consider too great for the incremental benefits received as part of the transaction, but that does not mean that JDA will automatically lose customers. What this means he said is that i2 customers will likely give JDA a chance, but they will have to prove itself and at least provide services that are on par with the level of expertise and talent they got from i2.
Supply chain acquisition and consolidation trend continues: This deal marks the longest in a fairly long line of acquisitions continue to ostensibly occur within the supply chain technology sector on a fairly frequent basis. Some examples of these deals—aside from JDA’s acquisition of Manugistics and today’s news, include: Oracle’s purchase of G-Log and various acquisitions by RedPrairie and Descartes, among others.
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