RedPrairie to Spread Across Europe through LIS Acquisition Part One: Event Summary

Event Summary

The long predicted consolidation within the warehouse management systems/ supply chain execution (WMS/ SCE) market finally seems to be happening. However, it has started by an unexpected route. Instead of a direct intra-market consolidation, some public SCE/WMS vendors and smaller, even profitable but undercapitalized and undervalued WMS/SCE vendors have found shelter under wealthy, more visible parents with complementary products. The example of the first would be the recent acquisition of former EXE Technologies by SSA Global (see SSA GT To EXE-cute (Yet) Another Acquisition). Examples of the latter are the agreement by 3M to acquire HighJump Software; the acquisition of OMI International by Retalix (see 3M Wraps Up HighJump, while Retalix Shops OMI International); and the acquisitions of TRW by QAD and TDC Solutions by Epicor.

The best example of an intra-market merger is the early February announcement of RedPrairie Corporation ( , formerly McHugh Software International). This upbeat provider of broad SCE solutions announced the acquisition of LIS (, its European counterpart and former competitor. The combined companies will operate under the RedPrairie name with projected 2004 revenues of $130 million (USD) and earnings before interest, taxes, depreciation, and amortization (EBITDA) of $23 million (USD). The company will supposedly employ over 600 associates from offices in the US, UK, mainland Europe, and China. RedPrairie solutions are also offered by partners in eleven countries, including Latin America, Russia, and South Africa.

According to John Jazwiec, who will continue to lead the expanded RedPrairie as its company leader, this acquisition should benefit both companies and their respective customers, given their complementary products, geographies, and vertical segments. This will enable them to leverage their combined service and research and development expenditures to produce nearly end-to-end supply chain solutions. Martin Hiscox, former CEO of LIS, will now report directly to Jazwiec as the Europe, Middle East, and Africa (EMEA) leader. All RedPrairie locations, regardless of geography, will soon sell, implement, and support the expanded product suite of the joint entity, as well as offer new capabilities, such as international trade logistics (ITL), mobile resource management and security applications, currently under development, or acquisition.

This is Part One of a three-part note.

Part Two will discuss the market impact.

Part Three will make user recommendations.

Financial Results

The news comes at the heels of the January 30 announcement of RedPrairie's financial results for 2003 that included record levels of license revenue and profitability. License revenue was $14.8 million (USD), up 44 percent over 2002, while EBITDA were $16.3 million (USD), up 20 percent over the prior year, and 22.4 percent of sales. What was particularly noteworthy in the company's 2003 results was its strong growth in license revenue fueled by a record thirty-four new customers, representing 61 percent of total deals closed. RedPrairie reportedly achieved that license revenue by closing fifty-six deals across all of its key vertical markets, including consumer goods, retail, food and beverage, high-tech, pharmaceuticals, and third party logistics (3PL). New customers also showed a good mix of tier 1 and mid-market companies.

Still, total revenue was $72.7 million (USD), which represented a slight drop compared to 2002. With this somewhat stalled organic growth, RedPrairie had to consider the acquisition route in order to remain one of the leaders in the SCE market, in terms of total revenue. RedPrairie's transformation started several years ago, when the company expanded beyond its WMS roots to include transportation and labor management, with WMS today accounting for only about 25 percent of revenue. This was accomplished through an integrated suite of DLx (DigitaLogistix) solutions that provide the transportation, labor productivity, and distribution management capabilities, enhanced with action-oriented components for real time control and performance measurement.

Most of its suite is based on the traditional bar-code technology familiar to ordinary shoppers and consumers, but the software can also use radio frequency identification (RFID) technology. While radio ID tag-enabled software is still just a miniscule part of its revenues, more and more user companies, and software vendors are adopting this technology (see SCE Leaders Partner To See Beyond Their Portfolios). This technology, which has lately been on almost everyone's lips, and seems to be heading into the mainstream and into boardroom , almost directly from scientific labs—it is heading, of course, with a number of caveats due to the technology's current imperfection.

RFID Technology Pioneer

RedPrairie is one of the first SCE vendors doing something about RFID. In early in 2002, it announced at its 5th annual Industry Summit the formation of a Center of Excellence that it would explore the potential applications and benefits of employing RFID technology within consumer goods supply chains. Joining RedPrairie as founding members of the Center of Excellence were Intermec Technologies Corp., Unilever, Georgia-Pacific, Marconi InfoChain, and CHEP International. All participants then pledged to work together to define where, within the supply chain process, RFID will have the greatest benefit and translate these benefits into increased functionality within SCE applications.

As a follow up, in mid-2003, RedPrairie further articulated its strategy for helping customers implement and benefit from emerging RFID technology. As part of this strategy, RedPrairie announced the availability of RFID Accelerator, a new application that will supposedly enable companies running virtually any distribution technology, including all versions of RedPrairie's DLx Warehouse and other packaged or legacy systems, to become compliant with the RFID information-sharing requirements of major retailers such as Wal-Mart and Target. RedPrairie's RFID strategy addresses the three issues companies are facing today as they plan for inevitable RFID adoption:

1) how to comply with the dominating retailer's 2005 requirements,

2) how to transition from current barcode environments, and

3) how to move to the ultimate scan-free environments that will be possible as RFID technology matures.

For a detailed discussion of RFID and RedPrairie as one of RFID technology pioneers see RFID A New Technology Set To Explode.

What the LIS Acquisition Brought

In October, LIS acquired Online Duty & Logistics, a specialist provider of solutions for excise and customs warehousing. The company, based in the northeastern English city of York, employed thirty-five people at the time of the acquisition, and was the UK market leader in duty management systems, with over one hundred companies using its applications to manage their bonding and customs requirements. The acquisition has expanded LIS' customer base in key areas such as retail, 3PL, and food and beverages, and has allowed both companies to provide new and existing customers with a broader range of supply chain applications. Growing demand for fully integrated, customs-enabled solutions have convinced LIS of the value of acquiring both expertise and products in this area. The solutions offered by each company were also complementary and the Online's duty management solution, DutyMaster, has since been integrated with Dispatcher-WMS from LIS. It offers users benefits such as the convenience of dealing with a single vendor, while the company's own WMS, SpaceMaster, has continued to be actively promoted. Both solutions complemented LIS' offerings in yard management, activity billing, and control of the extended supply chain, while DutyMaster can also interface with a client's current WMS, financial, and sales order processing packages.

Most recently and quickly after the acquisition, on March 19, RedPrairie launched a new version of Dispatcher-WMS Version 8.4, which, besides offering more features for management of advanced warehousing operations, has also been integrated with a customs module, a labor management module and a billing module. Version 8.4 can be used with a rich Microsoft Windows user interface (UI), as well as a browser UI that increases visibility and accessibility. The product is compatible with Borland's application server and IBM's WebSphere.

Dispatcher-WMS now offers a completely integrated customs module, which concludes the incorporation of Online Duty & Logistics' DutyMaster into the product suite. RedPrairie touts the functional integration of the products is the starting point for rollout to current and future global customers. Since customers have already ordered this module, accreditation procedures in different countries will start soon. ActivityBilling, which is fully web-enabled, allows companies to attach a cost to all services delivered by the warehouse. Third party logistics (3PL) and public warehousing providers can thus accurately track activity for multiple clients within a single warehouse and manage complex, invoicing contracts on a client-by-client basis.

Labor Management is another module to enrich the Dispatcher-WMS product suite, which allows the calculation of the estimated time that a task should take before that task is started. The calculated times take into account the routes that operators should follow, the time to access the locations, the nature of the materials handled, and other operational parameters. The Labor Management module allows objective comparison between the calculated time for tasks and the actual time it took to carry out the task. Release 8.4 also marks the arrival of advanced functionality for warehouse operations, since product substitution, container replenishment and staging of pallets are just some of the added functionality. Beam management allows for more efficient storage utilization, as the system takes into account the widths of pallets and the available space on a beam. Value added services are very important to some of RedPrairie's industries, and Dispatcher-WMS now includes a system-directed tracking and tracing of value added activities.

Many of the above added functions are market-driven and should show the commitment of RedPrairie to the development of Dispatcher-WMS. Voice-driven operations are another demand from the market, and Dispatcher-WMS 8.4 integrates voice supported warehouse operations such as receiving, put-away, picking, container picking, stock checking, and others. RedPrairie has deliberately chosen not to use a middleware solution because of the real time nature of the system.

This concludes Part One of a three-part note.

Part Two will discuss the market impact.

Part Three will make user recommendations.

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