Update Aug. 19, 2016, 9:05 AM
After a week of drama, JDA Software has rejected a takeover offer from Honeywell and will go with an equity investment of $570 million from private equiry firm Blackstone and its own current owner New Mountain Capital.
The investment will allow JDA to restructure a portion of its some $2 billion in debt. The company says the new investment will have no cash interest costs for JDA , will be used to retire existing deb,t and will reduce JDA’s interest expense by $70 million per year.
“We are thrilled to partner with New Mountain Capital to make this strategic investment in JDA,” said Viral Patel, Managing Director at Blackstone. “We are confident that the company is primed for accelerating growth in the years ahead.”
Notes SCDigest editor Dan Gilmore: "This move will have far less impact on JDA employees and customers than a buyout from Honeywell likely would have had, and obviously indicates some big time players have a kot of confidence in JDA's future. It was not clear how a Honeywell deal would have really worked in the end, and this new financing deal makes all those questions moot."
Orginal Story (Aug. 17, 2016)
News broke late last week that JDA Software - built over many years through acquisitions to become by far the largest so-called "best of breed" supply chain software provider - was on the verge of being acquired in rather surprising fashion by industrial giant Honeywell.
But now, news that another party has entered the game that may offer an alternate path for Scottsdale, Arizona-based JDA.
Supply Chain Digest Says... |
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Last week, the Reuters news service first reported that JDA was in talks to be acquired by Honeywell. The Wall Street Journal soon added that the deal was imminent, valuing JDA at about $3 billion, or close to three times its annual revenue, and that the deal could be announced as early as Monday of this week.
But Monday came and went without an announcement, and Reuters reported Tuesday that another deal was potentially in the works. It says the major private equity firm Blackstone was offering JDA's current owners, another private equity company called New Mountain Capital, a financing plan to help what it called a "debt-laden" JDA to take a different path than the Honeywell acquisition.
If this is indeed how the deal goes down, Blackstone would extend what is called a payment-in-kind financing deal, whose coupon on the loan would be paid with additional shares of stock. The financing would include equity warrants that would give Blackstone a significant minority stake in the company, Reuters says.
Reuters says JDA has a debt load of more than $2 billion, against annual sales of around $1 billion, which is hampering JDA's ability to invest in its growth. The Blackstone deal would allow JDA to redo those loans and pay back Blackstone in part with shares rather than cash.
JDA has grown from a retail point of sale system provider to the largest standalone provider of supply chain software through acquisitions in the 2000s of companies such as e3, Manugistics and i2 Technologies. It has thousands of customers, especially in the retail and consumer goods sectors, as well as some industrial companies, especially in high tech, though the main focus in recent years is clearly migrating even more heavily towards consumer goods to retail.
In 2012, New Mountain Capital, which owned supply chain software company RedPrairie, took the then public company JDA private in a deal worth some $1.9 billion. JDA clearly struggled for awhile in integration of the two companies, and also from a lack of investments by many retailers in its planning and merchandising systems in favor of ecommerce systems and facilities.
However, JDA seems to have moved things back in a positive direction, saying that in the first half of the year the company had its highest growth in new customers since its merger with RedPrairie.
The fact that industrial conglomerate Honeywell would be interested in being in the supply chain software business is in one sense a bit surprising. However, someone within Honeywell obviously has a vision, as in late June the company agreed to acquire automated materials handling system provider Intelligrated for some $1.5 billion.
Though its motivations for that deal are not yet clear, it seems likely Honeywell hopes to cash in on strong demand for distribution center automation generally these days, especially to support ecommerce fulfillment, with that market growing nicely in recent years.
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While JDA has solutions that support distribution and ecommerce fulfillment, such as its Warehouse Management System (WMS) software, much of the rest of JDA's solution set around planning and merchandising for retailers and consumer goods companies would seem far afield from a fulfillment focus.
 Honeywell actually entered the supply chain business in 2007 with the acquisition of Hand Held Products, a maker of data collection equipment. It expanded that line when it acquired the parent company of wireless terminal maker LXE in 2011, and then continued with strategy with the 2013 acquisition of auto ID equipment provider Intermec, which was also the parent of Voice system company Vocollect.
The Two Paths for JDA
The two alternatives now apparently before JDA and its owner would result in very different paths for the company, its employees and its customers.
A full acquisition by Honeywell would likely lead to some major changes in management and control over time, as is always the case when such deals occur.
Honeywell may also choose to focus on or exit from different markets versus JDA's current strategies, which obviously would impact its customer base. It seems almost certain that at least part of JDA's business would be integrated in some way with the new Intelligrated DC automation solution set.
But if JDA decides on the financing path offered by Blackstone, it would likely largely stay the same as a company with current management and strategies, gaining some measure of relief from its debt burden but with new pressures from another investor in the mix that will expect a strong return on its money.
It will really be a "bird in the hand versus two in the bush" situation for New Mountain Capital, which is faced with a decision about likely gaining some return on its combined investment in JDA and RedPrairie (how much is not clear given the debt situation) right now, versus extending its investment in a Blackstone deal and hoping for an even larger payout, perhaps through a public stock offering, down the road.
It is also possible yet another suitor could arrive in the mix.
Stay tuned to SCDigest for the latest in this important story, with insight available nowhere else in media and analyst channels.
Any reaction to this news on JDA? What do you think of the two paths? What do you think will happen? Let us know your thoughts at the Feedback section below or the link above to send an email.
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