RedPrairie and JDA Software Merger, Part One: What’s (Not) to Like?

My blog series in 2009 entitled “A Tale of a Few Good SCM Players” talked at great length about RedPrairie Corporation, JDA Software, and Manhattan Associates, including their corporate history and acquisitions. The general feeling at the time was that hardly any of these three great supply chain management (SCM) software companies would remain independent in the long term.

It took a few years for two of these companies to decide to merge, but on November 1, 2012, RedPrairie and JDA announced their merger agreement, under the terms of which the entities affiliated with RedPrairie will effect a cash tender offer to acquire all outstanding shares of JDA common stock for $45 per share.

This offer price represents a 33 percent premium to JDA’s stock price on October 26, 2012—the day before market rumors surfaced stating JDA was exploring a sale. The offer price also represents a 16 percent premium to JDA’s all-time high stock price. The transaction has a total enterprise value of approximately $1.9 billion. JDA’s board of directors has approved the transaction, which will create one of the largest global software companies with combined annual revenues of over $1 billion.

Following completion of the transaction, JDA’s CEO Hamish Brewer is expected to lead the combined company as its CEO. Mr. Brewer has more than 20 years of industry experience and a proven track record of successfully integrating large businesses. RedPrairie’s CEO, Michael Mayoras, will remain on the board of the combined company.

What do I like about this merger?

At least on paper, the combination of RedPrairie and JDA creates a powerhouse SCM company, gives it a major leg up on Manhattan Associates, and better positions it to fight off SAP and Oracle. Again, on paper and in general, the merger is bringing together the leader in supply chain planning (SCP) and merchandising with the leader (or arguably the second best if one considers revenue, but not really the capabilities) in supply chain execution (SCE) and workforce management (WFM). The new company will have a rich portfolio of SCP, SCE, merchandising, WFM, and omni-channel commerce solutions. The combination of the two companies can bring a one-stop-shop value proposition to both retailers and manufacturers.

I like the deal in principle, since JDA has always had a big weakness in the realm of SCE. Now, there is one best-of-breed titan in the SCM land, and it is always a great thing to keep Oracle and SAP honest in this space. Make no mistake, there is an absolute ton of work to do from a product packaging, rationalization, and integration point of view, but the first thing I would probably do after reassuring customers and employees is embark on a rebranding initiative. In my opinion, Manugistics and i2 Technologies were always bigger and better SCM names (in terms of innovation and vision, if not execution) than JDA (who ended up acquiring them), with RedPrairie right up there. To me, calling the new merged entity JDA undersells what the new company is all about. I’d look at revamping the name, the image, the brand, the tagline, and the overall story. And that, for an ambitious and energetic marketer, would be a fun and invigorating exercise!

As for whose idea this merger was, I think we know the answer after reading Dan Gilmore’s Supply Chain Digest article. Sounds like it was New Mountain Capital (NMC)’s idea to put these pieces together (NMC owns RedPrairie). Given NMC’s track record with Deltek, I am confident that the firm knows what it is doing. (NMC recently sold Deltek to Thoma Bravo as a much improved and functionally wider company than when they acquired it in 2005 (and for a hefty profit, see this blog post). As for who else was talking to JDA, I have to believe Oracle at least considered it. The long-term exit strategy for JDA is Oracle (if Infor is unable to afford it and if IBM already has plenty of retail/SCM pieces anyway) in my mind. If I were Oracle, I’d be considering taking out yet another competitor, gaining access to a nice recurring maintenance stream, and surrounding SAP even more in a traditional SAP battleground, the consumer packaged goods (CPG) manufacturing space.

Surely, i2 has been a mess as an acquirer (remember the $5 billion Aspect write off in the early 2000s, and wasted opportunities with RiverOne, Supplybase, Trade Service Corp., Rightworks Corp., etc.?), but JDA will not necessarily have the same problem. One of JDA's biggest mistakes was to get suckered into buying i2 and having that huge failed implementation lawsuit at Dillard’s and the $250 million or so punitive damage verdict (the matter has meanwhile been settled). In fact, JDA has done quite a decent job with Manugistics, much better than anyone expected. From that merger came the idea of converging the needs of CPG manufacturers with those of retailers. JDA may have wanted to add i2 to this portfolio because of i2’s better transportation management system (TMS) capabilities and advanced planning and scheduling (APS) capabilities for discrete manufacturing industries, but that acquisition hasn't been stellar to put it mildly.

Certainly, no one knows how good or bad the RedPrairie-JDA merger will be. RedPrairie really has the best-of-breed store WFM capabilities (including task execution, where only Reflexis Systems is the major competitor) as well as multi-channel e-commerce from the Escalate/Blue Martini buy. These capabilities can only be matched by Oracle-ATG, JDA’s Connected Customer Cloud (and perhaps RedPrairie will be targeted for smaller customers), and IBM WebSphere Commerce, whereas SAP admits a lack of a native omni-channel commerce offering at this stage. Also, long ago, i2 and RedPrairie were talking about merging (well before JDA acquired i2), and I guess some due diligence was done then.

Dan Gilmore is right with regards to wondering why JDA wouldn’t remain as a public company while adding RedPrairie to the fold. It is indeed much better to fix whatever issues there are and do the always tough job of integrating the two firms, products, and cultures without the added pressure of being a public company (i.e., the market’s nervousness). It is also easier to move to the cloud and managed hosted services (which has been JDA’s strategic pillar of late) and transition to a recurring subscription based model, which provides a more predictable revenue stream, without the pressure of meeting stock market expectations.

There is certainly some product overlap with the two companies. Just as with the i2 acquisition, the merger adds another TMS to the mix. But, given that RedPrairie has only about 80 TMS customers, it is a no-brainer which TMS product is a go-forward one (hint: former i2’s). On the retail side, there are clearly overlaps, but RedPrairie and JDA have seldom met in the retail sector. On the SCP side, there is still a joint venture RedPrairie has with Andre Martin and his Flowcasting group, which offers store level forecasting and fast distribution requirements planning (DRP) for retailers and manufacturers. It is a very good system that finally links the actual retail store point of sale (POS) demand with the upstream supply chain—but RedPrairie has struggled to take it to market (it has only a few live customers that cannot even be revealed).

What are the Remaining Question Marks?

Unfortunately, the RedPrairie/JDA analyst call on the day of the merger announcement was thin on substance and the merging companies did not even share an FAQ with analysts at the time, or talk about the management team and where the HQ would be located. It is well-known that RedPrairie moved its HQ from Waukesha, Wisconsin to Atlanta, Georgia (where Manhattan Associates is also based) a few years back. However, if Brewer is going to lead the combined business as CEO, my thinking is that they’ll pull the HQ to Arizona (where he and JDA are based). Regarding headcount— the combined company will have 4,900 associates. The analyst call participants discussed numbers of customers and penetration of various markets for the combined customer roster, but the number of shared customers was not given.

In any case, they haven't even settled on a name for the merged company. My guess is that the JDA name will be gone for good. One interesting part of the analyst call was Mike Mayoras, RedPrairie’s outgoing CEO, revealing that NMC had been the catalyst driving the deal and that there weren't any direct talks between the management teams of both companies until the deal was announced today. So it appears that NMC wanted to do this deal fairly quickly, which raises a question about who else was talking to JDA.

Given the rushed “shotgun wedding” nature of the merger, there are lots of questions, but few details were divulged during the call. In the meantime, the merging vendors have come up with a makeshift FAQ page, but some of the answers to burning questions are still missing (mostly in a “stay tuned for more” manner). It appears that the merger came as surprise to everyone, especially the employees of both vendors. Reuters reported in late October 2012 that JDA was exploring a sale and had hired JPMorgan Chase & Co as an adviser, and NMC apparently jumped the gun.

We might want to note that this transaction is not yet final. Once the transaction is complete and RedPrairie and JDA are able to operate as a combined company, I believe a lot of the ‘unknowns’ will either answer themselves or be articulated clearly to the marketplace. Part 2 of this series will analyze how the RedPrairie and JDA Software merger might work. Your comments, opinions, and experiences with these software companies are welcome in the meantime.

Related TEC blog posts:

SAP SCM—Stepping Out of Obscurity (Feb 2012)

RedPrairie: Enabling End-to-End Supply Chains (from Manufacturer to Retail Shelf) (Dec 2011)

JDA FOCUS 2010 Impressions – Part 2 (Sep 2010)

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