JDA Software Buys Supply Chain Specialist Manugistics

Published: May 8, 2006

by Timothy Prickett Morgan

The heat and pressure continues in the application software industry, and last week JDA Software, a specialist in the retail sector with strong ties to the OS/400 and Windows server platforms, announced it had acquired Manugistics, which has a complementary specialty in the supply chain and revenue management applications area.

JDA is ponying up $211 million in cash, or $2.50 a share, to buy all of the outstanding stock of Manugistics, and it is doing so in order to have a broader base of customers and to have another set of applications to sell. The retail sector is notoriously choppy when it comes to buying application suites, and JDA has been up and down like a roller coaster in the past several years, particularly as SAP, Oracle, and others move in on its midrange turf. JDA said that the combined company would have about 5,550 unique customers, who spend about $170 million a year on maintenance for software products; the company also said that it expected annual revenues in the range of $390 million for the combined firms.

"No other software company will be able to offer a similar breadth and depth of solutions to the very large, vertically focused demand chain market," said Hamish Brewer, JDA's chief executive officer, in announcing the acquisition. "This deal is as close to a perfect match as you can get for an acquisition of this size. Only JDA can bring the product, market and industry leadership proposition that will position Manugistics for a new era of growth."

To fund the deal, JDA turned to Thoma Cressey Equity Partners, a venture capitalist with over $2 billion in equity spread around various companies, to kick in $50 million, for which Thoma Cressey got a stake in the new JDA and a seat on the board of directors.

While companies always focus on the synergies, such combinations are also about eliminating competition and costs. Now, JDA won't be banging heads with Manugistics as it competes for the budget dollars among retailers and wholesalers, but will instead benefit no matter what area these companies focus on. And JDA will have a more complete solution with which to defend itself against the onslaughts of SAP and Oracle, both of which have aspirations in the retail and distribution sectors. This is also about saving money. Right now, if you add the latest annualized financials for the two companies together, the combined firm is losing money. But JDA's managers believe they can eliminate $25 million to $30 million in redundant costs out of the company, thus turning it into a more regularly profitable organization.

JDA has a little over 1,000 employees and a current market capitalization of just under $400 million. It was founded in 1978 by James Armstrong in Calgary, Alberta, Canada, and focused on IBM's System/3X platforms. In 1985, Armstrong sold the Canadian business, moved to Cleveland, Ohio--which used to be a big manufacturing town (I know, it is hard to believe, but 100 years ago, Cleveland was amazing)--and formed a new partnership (which included himself). In 1987, JDA inked a deal with a big retailer in Phoenix, Arizona, and rather than do remote support, Armstrong moved the firm to that city, where it is located today. In 1996, JDA went public, and has acquired a half-dozen small retail specialists since the application software market started to cool in 2000. Like many companies that started out on the System/3X and AS/400, JDA has branched out into supporting other platforms, and in its case, Windows is a big alternative.

Manugistics is a formerly high-flying darling of the late 1990s and early 2000s, and grew very rapidly during the boom years. It is based in Rockville, Maryland, and has over 900 employees. The company has created a suite of Java-based applications using its WebWorks toolset, which means they can be woven into the existing JDA suites. This is, in fact, the kind of integration that many JDA and Manugistics customers were already having to do.