Merger Mania At Its Extremes

Event Summary

The long ongoing consolidation in the ERP market seems to have begun to spill into adjacent enterprise applications markets, possibly with some additional twists like involving more than two parties in the marriage. At the beginning of September, to address the market demand for solutions that enable greater supply chain agility (in terms of visibility and event management) and bottom line impact, SynQuest, Inc. (NASDAQ/SC: SYNQ), a provider of supply chain planning (SCP) solutions, and two privately held supply chain event management (SCEM) providers, Viewlocity, Inc. and Tilion, Inc., announced that they had entered into definitive agreements to merge the companies. SynQuest and Viewlocity, both based in Atlanta, GA will merge operations, and Boston, MA-based Tilion will merge into the combined company to provide approximately $13 million in cash. The companies claim the transactions extend the existing partnership between SynQuest and Viewlocity, and will strengthen the financial resources available to the post-transaction company.

In addition to the approximately $13 million cash received in the Tilion merger, SynQuest will also issue between $14.5 million and $17 million of new shares of Series A convertible preferred stock, in exchange for additional cash investments by existing shareholders of SynQuest and Viewlocity, including Battery Ventures and Warburg Pincus. A portion of that additional investment may consist of conversion of up to $7 million of debt that may be outstanding prior to closing. The existing shareholders of Tilion, including North Bridge Venture Partners and Venrock Associates, will also receive approximately $13 million in shares of Series A Preferred to be issued to Tilion in the merger. The new funding of approximately $30 million will reportedly be used for working capital and general corporate purposes, and the transaction is expected to be completed by year-end 2002. Viewlocity and Tilion will, through a series of related transactions, merge with and into SynQuest, with SynQuest remaining as the surviving legal entity. The outgoing CEO of former independent Viewlocity, Jeffrey Simpson, will serve as chairman and CEO of the merged company.

Following the transactions, the combined company will reportedly market financially focused SCP and adaptive execution capabilities for customers with complex, extended supply chains. SynQuest claims to provide business process based solutions that are designed to go beyond the functional silos of traditional SCP applications, and the four walls of the enterprise, to improve profits and customer service. Its customers include Ford Motor Company, Nissan North America, HON Industries, Simmons Company, Penske Logistics and Honda Express. Viewlocity's solutions, on the other hand, monitor supply chain execution (SCE) against the original plan, detecting deviations in time to prevent customer service disruptions and avoid costly fixes such as shipment expediting. The solution also provides recommendations for solving problems associated with these unplanned events and enables collaborative resolution across supply chain participants. Viewlocity's customers include Dell, DHL and DSC Logistics.

The combined solution will be aimed at supporting the real-time enterprise through adaptive supply chain capabilities, including:

  • explicitly planning to maximize supply chain profit in a dynamic environment, while meeting or exceeding customer expectations; and

  • integrating event management with planning to enable the successful execution of the plan given current conditions.

This is Part One of a two-part analysis of recent merger announcements.

Part Two will discuss the Challenges and make User Recommendations.

Market Impact

Apart from a not-so-common practice of tripartite merger, the above move seems to have merit despite the inevitable hurdles it must overcome. As the latest few consecutive quarterly reports have largely seen disappointments even from many leaders and former market darlings, one can rightfully question the sustainability of many of the smaller players, particularly in esoteric niches. The ensuing spate of mergers and/or acquisitions could be one way for the cash-depleted smaller vendors, which have miraculously survived both the pre- and post-Y2K conundrum, dotcom's bubble, and protracted economic slowdown draught, to keep themselves abreast of the growing demands on the underlying collaborative real-time product architecture and functionality breadth. Further, customers remain vendor viability cautious and eager investors are becoming an endangered species. For smaller vendors, attaining these goals under their own steam certainly remains a tall order since many vendors have also lately been reducing staffing levels in order to cut costs, whilst at the same time introducing heavy product discounting and competitive sales practices lowers the top line.

Even without the above extraneous market drivers, like recession, the future of a plethora of SCEM vendors remaining as viable stand-alone entities would be highly dubious. Like the former material requirements planning (MRP) providers, which are nowadays all but extinct due to either their evolution or merger into materials resource planning (MRPII) first, and eventually in manufacturing-oriented ERP providers (or the demise of the less decisive others), today's SCEM vendors simply cannot remain as viable stand-alone component providers. Consequently, as MRP is today part and parcel of ERP, SCEM, being rather an enabling technology in a supply chain network than an application on its own, will gradually be blended into the SCM family of matter-of-course' modules, losing thereby its functional sovereignty.

Due to the increasing visibility of supply chain information, the necessity of SCM has also increasingly become the provision of real-time information. Additionally, there are still significant barriers to an easy deployment of supply chain planning (SCP) systems, as they are based on cumbersome proprietary algorithms and heuristics that take a long time to master and harness to work, forcing companies to have full-time rocket-science' expert consultants on the premises to interpret the results and to keep the application in tune with the business processes it supports. Therefore, the use of traditional advanced planning & scheduling (APS) methods that are non memory-resident and latent in itself as a basis for all decision making is becoming increasingly unsound.

The future will thus see a blend of real-time supply chain event management (SCEM) (i.e., execution side for the tactical time horizon) and SCP with its strengths in inventory management and capacity planning (i.e. planning/optimization side for mid-to-long-term horizon). To that end, as an example, Adexa has been posting growth and good financial results, economic hardships notwithstanding, by providing a homegrown solution that is flexible and integrated on a single data model and can be incrementally implemented as required. Given furthermore pure-SCM leaders', i2 Technologies and Manugistics, forays into marrying these components of SCM, as well as former core-ERP gorillas' (i.e., SAP, Oracle, J.D. Edwards, PeopleSoft, Baan, etc.) ever increasing footprint in the SCM market, smaller SCM incumbents are not left much of a choice.

Having said all that, the merger might not come as a surprise, as it may even appear as a good financial strategic maneuver for all of the parties in case, since Viewlocity thereby finds a convenient way of going public, Tilion should find a better use for its venture-funded cash (which has lately been everyone's object of desire and even an abstract notion), and newly fortified SynQuest has the opportunity to master the offering with best of both words' traits — traditional SCP and SCEM — by combining real-time event management with traditional optimization, and by even extending from traditional passive alerts to deeper types of decision support based on key performance indicators (KPI), that would result with active (i.e., which only suggest the corrective response/action) and even fully auto-responsive alerts .

Paired product lines and different vertical segments domains should also bode well for the new merged entity. For one, SynQuest's planning suite and Viewlocity's exception/event management functionality have served diverging markets and should complement each other well, creating possibly an end-to-end functionality from manufacturing and inbound transportation planning through supply chain execution. Moreover, SynQuest has been strong in the automotive, durable goods and industrial equipment sectors with its systems that plan and schedule shop-floor operations, while Viewlocity has its roots in consumer packaged goods (CPG) and high-tech, with a minor overlap in the third-party logistics (3PL) market segments. Therefore, a cross-sell and up-sell opportunities for the trio are at least there should the companies be able to get their unified sales, marketing and product strategy act together.

This concludes Part One of a two-part Analysis of recent merger announcements. Part Two will discuss Challenges and make User Recommendations.

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