After years of struggling to remain afloat, Manugistics Group Inc. will get a chance to be resuscitated courtesy of JDA Software Group Inc., which plans to acquire the beleaguered supply chain management software provider and make it a strategic cog in JDA's global demand chain market plans.
JDA (Scottsdale, AZ) has signed a definitive agreement to purchase Rockville, MD-based Manugistics for approximately $211 million in cash, or $2.50 per share. The acquisition, which is expected to close sometime before the end of the third quarter, would create a company with revenues in excess of $390 million and more than 5,550 customers. In connection with the merger, JDA announced that Thoma Cressey, a backer of enterprise software companies, plans to invest $50 million in the combined entity.
The JDA and Manugistics software lines have tremendous synergies, analysts said, and focus on the demand chain market, where the two currently have 100 common customers, company officials noted. But while JDA provides optimization and analysis software used by retailers, distributors, and wholesalers, the Manugistics portfolio extends its reach further into the supply chain and serves up additional advanced optimization capabilities, they explained. Manugistics also delivers access to new target audiences -- most notably, consumer goods manufacturers and wholesalers -- and offers highly coveted price optimization and transportation management capabilities that are currently not part of the JDA portfolio.
"JDA comes in at the point of sale, at a cash register in a store, and works its way back into the supply chain; conversely, Manugistics is focused on optimizing decisions in a manufacturing organization working down through the supply chain and out to the end customer," noted Hamish Brewer, JDA's CEO, in a press conference. "Bringing the two together optimizes decisions that occur throughout the entire global demand chain."
The acquisition, which nearly doubles JDA's size, creates what Brewer called a "powerhouse for demand chain solutions," positioned to more effectively compete against generalized competitors and to finally make good on Manugistics' value proposition. "JDA has the products, the market presence, the expertise, and the people to turn Manugistics into the company it can be," he said.
Brewer cited only a few areas of overlap between the two companies' product suites, specifically in forecasting and replenishment capabilities. For the Manugistics' market segments that are currently outside of JDA's reach -- business travel and transportation and government, for example -- Brewer said JDA would take time to understand the dynamics of those businesses and determine their value moving forward.
Analysts saw an upside to the marriage, but pointed out some challenges, including those related to JDA executing a merger of this scope. "JDA has done well in prior acquisitions, but this is a big one to swallow and they have to do so quickly," said Lora Cecere, research director at AMR Research Inc. (Boston). "The acquisition allows Manugistics to move on and gives JDA new opportunities, but the proof is in the execution. It's not a home run yet."
Brewer said that JDA's track record of nine acquisitions in the last few years (including Engage, Comshare's advanced planning and allocation software division, and E3 Corp.) gives it ample expertise to pull this off. "As far as a financial clean-up operation, this is going to be the biggest one we've undertaken," Brewer admitted. "Even though it's significantly larger in scale, though, it's nothing we haven't done with our previous acquisitions."
The combined JDA/Manugistics should also anticipate some fallout as SCM competitors leverage initial customer confusion surrounding the merger as opportunity for poaching. Long-time Manugistics rival i2 Technologies Inc. (Dallas) didn't waste any time making its competitive move. For the remainder of 2006, i2 will provide free services for integrating Manugistics applications to the i2 Agile Business Process Platform.
As far as opportunity goes, Manugistics' transportation management solutions present JDA with the greatest potential, according to AMR's Cecere. "They've got a big installed base that moves a lot of stuff on trucks," she explained. "That's a possible new revenue stream for organic growth, and Manugistics' line of transportation planning products has a following among grocery companies, retailers, wholesalers, and mass merchants -- all in JDA's sweet spot."
JDA has already formulated a detailed plan to integrate the pair's products, including creating a common user interface that works across both product lines as well as integrated workflows. There will also be work to do in reconciling the companies' different service-oriented architecture strategies for next-generation products -- JDA's, which has been around Microsoft's .NET, and Manugistics, now around J2EE, Brewer said. He did not provide timeframes regarding when this work would be completed.
Apart from the product benefits, Brewer said there are compelling financial benefits to be gained from the merger, including the ability to generate between $25 million and $30 million in near-term cost savings derived from synergies in operations, administrative overhead, and infrastructure expenses. JDA already has a commitment from several senior Manugistics executives to remain with the combined company. He did not reveal if Manugistics CEO Joe Cowan would be among them. Cowan joined Manugistics after stints with supply chain software provider EXE Technologies (now part of SSA Global) and Invensys's Wonderware unit.
In related news, both JDA and Manugistics reported quarterly financial results. In preliminary results for its fiscal 2006 fourth quarter, ended Feb. 28, 2006, Manugistics said it expects to report its first operating profit in some time -- GAAP operating income of between $2.5 million and $4 million on revenues of between $44 million and $46.5 million. This compares to a GAAP net loss of $17.2 million on revenue of $45.2 million in the corresponding period last year.
For its first fiscal 2006 quarter, ended March 31, JDA reported net income of $487,000 -- off from $703,000 posted in the like period last year -- on revenue of $47.9 million, which is down from the $50.3 million logged in the first quarter of 2005. Officials said the results, while disappointing, would not impact the company's earlier guidance of 5% to 10% growth this year and were by no means a trend.
"Although this is a difficult licensing quarter for us, in general, the company performed well," said Kris Magnuson, JDA's executive vice president and chief financial officer. "With our sales cycles longer than 90 days, we always expect fluctuations from quarter to quarter and we always bounce back."