Expanding its supply chain execution software portfolio, HighJump Software today disclosed that it has acquired Pinnacle Distribution Concepts Inc., a provider of on-demand, Web-based transportation management software (TMS) and services. Terms of the cash deal were not disclosed.
By acquiring Pinnacle, HighJump vaults into contention in the highly fragmented TMS market, a segment whose stature has soared with the escalating importance of global supply chains and skyrocketing energy costs. The deal is HighJump's first acquisition since it itself was purchased by 3M Co. two years ago, and represents HighJump's entry into the on-demand software space, according to Paul Steen, the Eden Prairie, MN, company's vice president of marketing and alliances.
In an interview, Steen said HighJump was attracted to the Knoxville, TN, company's heritage in transportation management software and experience with on-demand application services delivery (Pinnacle operates its own Tier-1 hosting center), where it already serves a wide swath of large and mid-size manufacturers such as Becton Dickinson, Avery Dennison, Yamaha Motor, General Electric, Schneider of Hanover, and Belden Wire & Cable. "There are plenty of places we could have looked for on-demand [TMS]," Steen said, but "the fact that Pinnacle has well over 150 sites [using the software] was a real attractive quality."
Pinnacle's President Bryan McKenzie said his decade-long relationship with HighJump CEO Chris Heim helped cement the deal. "Getting associated with a company like HighJump and 3M will give us product exposure we couldn't otherwise have," McKenzie added.
Not only does his 14-person, profitable company fit neatly with HighJump on a cultural level, but it also works on a technology level, McKenzie said. Under terms of the deal, Pinnacle's FreightLogic application service, which handles load planning and logistics management with third-party shipping companies, will become part of HighJump's Microsoft .NET-based Supply Chain Advantage Suite, an integrated portfolio of RFID-enabled software for warehouse, transportation, and yard management, among other things.
Because both companies' offerings have underlying architectural similarities -- Microsoft foundation technologies -- functional integration should be easier. Pinnacle, moreover, has become quite accomplished at systems integration, since its customers usually present different technological challenges. The only difference with HighJump is the need to integrate at a higher level with a full suite of SCE applications, McKenzie noted.
"We should have a usable phase-one integration by the end of the month, and then enhance it as time goes on," he promised.
That will be critical as HighJump pursues entrenched players in the TMS space such as Descartes, which has successfully turned around its business after switching to an on-demand model, Manugistics (which was recently acquired by JDA Software), and others such as Manhattan Associates and Red Prairie. Oracle, in fact, segued into the TMS segment last fall when it purchased G-Log , which provides an on-demand offering. Even SSA Global, which recently agreed to be acquired by Infor, offers its TMS software module as a hosted application service.
While not familiar with Pinnacle, Bob Ferrari, an analyst at Manufacturing Insights, a research arm of International Data Corp. in Framingham, MA, said the deal makes sense for both parties. HighJump can tap a fast-growing market segment, while Pinnacle gains access to HighJump's loyal customers.
The TMS market, Ferrari said, reached $239 million in revenue last year, and is expected to grow at a healthy 6.6% compounded annual clip through 2010. Growth, he said, is being driven by the challenges manufacturers face in managing their expanding global supply chains amid surging energy costs. With its lower startup, support, and training costs, on-demand service delivery built on Microsoft foundation technologies is particularly attractive to resource-challenged mid-market manufacturers, he added.
The same can't be said of other SCE applications, HighJump's Steen said. While on-demand has proven to be successful for TMS products, it does not appear to fit with the delivery of warehousing applications, which requires a high degree of contact with people on the plant floor. "[On-demand] is certainly something to be explored, but it must be customer-driven," Steen said of the company's interest in offering other SCE applications via a hosted environment.
As for additional acquisitions, Steen said HighJump is considering all avenues -- both acquisition-driven and organically spawned -- for continuing its revenue growth, which has averaged over 20% during the last five years. (3M does not break out HighJump's results, but the 200-person company posted $43 million in revenues in 2004.) While the company's expertise in data-collection software spurred its recent expansion into the MES space, HighJump's acquisition strategy will remain concentrated on the execution side of the supply chain, according to Steen.
"We will look at ways to expand our source-to-consumption model for products put out into the marketplace," Steen noted.
Pinnacle must first be integrated into HighJump's operational fabric. All of Pinnacle's employees are being retained, Steen wrote in an e-mail exchange. Founder McKenzie will stay with the combined companies, reporting to Heim.
Pinnacle will operate as a division of HighJump and will remain in its Knoxville headquarters, though a limited number of administrative functions will be assumed by HighJump personnel, including human resources, finance, and marketing, Steen noted.