Aspect Acquisition Not Overpriced
S. McVey - April 13th, 2000
Giving analysts less than a week to prognosticate on its new alliance
with IBM and Ariba, i2 Technologies announced it would acquire B2B collaboration
software makers Aspect Development Corporation and Supplybase, Inc.
i2 agreed to pay a staggering $9.3 billion in stock for Aspect, a sum
that eclipsed Computer Associates' $4 billion bid for Sterling Software
announced less than a month ago. Although the price dropped to around
$8.6 billion at close of trading on the announcement date, the deal is
still the largest software industry merger to date, though the valuation
was met with skepticism by some Wall Street observers. Aspect had $95
million in revenues in fiscal 1999, making i2's offer price nearly one
hundred times its revenue, a multiple that dwarfs that paid by Computer
Associates for Sterling. Clearly, i2 based its offer on the potential
for capturing part of the $100 billion B2B market that Aspect provides,
while mindful of the attention such a sum would receive in the larger
B2B software arena.
publicly-held company based in Mountainview, California, Aspect brings
two key contributions to the union. The first is an integrated system
for product lifecycle management (PLM) and part sourcing. Aspect's PLM
applications enable companies to design products while maintaining visibility
to sourcing options and constraints, a combination that helps ensure availability
and minimize costs at all stages of the product lifecycle. To complement
this, i2 brings optimization capabilities to PLM problems that include
transition planning, development and resource scheduling, requirements
planning and product portfolio planning.
Aspect brings content: a collection of electronic data catalogs containing
information on 17 million industrial parts and several thousand suppliers.
i2 will channel this information to its TradeMatrix and customer-centric
e-markets to give participants a wider selection of procurement options
and other marketplace services (see Table 1).
1 - i2 e-Markets
InternationalUnited Technologies Corp.
parts and service
Motor Sales, Inc.
and consumer goods services
providers and the services source for shippers participating in vertical
is by far the smaller of the two acquisitions, but the potential of its
technology for development and strategic sourcing of custom parts make
it a huge bargain for i2. Custom parts represent the most strategic component
of procurement for large, complicated designs.
While some have suggested the merger flirts with antitrust issues, i2
and Aspect are far more complementary than competitive. Aspect's content
and management applications made it an established player in the product
lifecycle management (PLM) market long before i2 entered in September
1998. Product lifecycle management optimizes the management of products
from concept, design and test, to phase-out and replacement.
symbolic at that time, i2's entry into PLM was calculated more to demonstrate
that it understood the synergies offered by combining supply chain management
(SCM) capabilities with PLM. At the very least, manufacturers of products
characterized by short lifecycles, such as PCs, mobile phones, and other
consumer electronics, gain cost benefits from having access to large numbers
of components and suppliers. Greater synergies can be achieved in the
interplay of SCM and PLM throughout the procurement, manufacture, and
distribution of goods across their life cycles.
acquisitions, which come just as i2's revenue growth had reached a relative
low point, demonstrates why i2 is a market leader. Many companies would
be content with 100+% revenue growth (CAGR) over five years, but i2 saw
the benefits that its supply chain management capabilities could bring
to B2B procurement and didn't wait for its competitors to take the initiative.
Though Aspect is its largest purchase to date, both in terms of price
and people, i2 has been successful in reaping return from past mergers
and its financial position tees it up for success in this case as well.
merger may have unpleasant consequences for Aspect alliance partners SAP,
Oracle, and Baan. These ERP vendors acquired or developed SCM modules
to compete with i2. Aspect has strategic reseller agreements with SAP
and Baan and has established a marketing and integration alliance with
i2 has stated that existing partnerships will be kept up, competition
will place considerable strain on these relationships over time. SAP has
introduced Advanced Planner and Optimizer (APO), which competes directly
with i2's RHYTHM supply chain management applications as well as procurement
solutions through mySAP.com. Formerly a close integration partner of i2,
Oracle began marketing its own SCM products along with its ERP suite last
year, although Oracle's SCM products have yet to reach the market as released
products. Oracle further alienated i2 in November, 1999 when it and Ford
Motor Company launched a high-profile venture, AutoXchange, an e-market
serving Ford and its suppliers. The venture is on a par with i2's iStarXchange,
a joint effort of i2 and Toyota announced in late February.
i2 had previously announced Aspect as a preferred content supplier for
TradeMatrix, but with the merger, i2 plans to incorporate Aspect data
catalogs into TradeMatrix immediately, giving users a substantially enhanced
selection of parts and suppliers.
more pressing question for users is when the merger will deliver an integrated
solution that marries SCM and PLM. The confluence of these two disciplines
represents a new market that addresses the impact of supply chain management
on product design. So far, the companies have spoken only at a high level
on the whole being greater than the sum of the parts, which indicates
that much work needs to be done. i2 and Aspect have collaborated on past
implementations so some of the groundwork is there, but expectations are
now so high that i2 will be hard pressed to live up to them.
should not expect a true SCM-PLM integrated offering for at least six
months, which even then will be essentially a prototype. Part of the reason
lies in the difficulties inherent in predicting demand through all stages
of a product's lifecycle.
lifecycle planning is basically a forecasting problem, it is complicated
profoundly by uncertainties in market demand, success of promotions, competitive
actions, and many other factors. A supply chain optimization algorithm
that seeks to suggest accurate replenishment quantities and capacity reservations
to match this fluctuating demand faces a nearly insurmountable task. When
the integrated solution becomes available, users should consider constructing
scripted scenarios around a past product introduction for i2 to demonstrate
prior to signing a contract.
i2 grows, it will find itself under even greater scrutiny, from both professional
market watchers and the public at large, that will magnify missteps and
make it prone to the same headaches as rivals SAP and Oracle. But of course,
these are good problems to have. Users should herald the merger of i2
and Aspect as an investment in the future of B2B collaboration, but avoid
being overtaken by the hype.