Rumors Say JDA Software Slaps On For Sale Sign
November 5, 2012 Timothy Prickett Morgan
It has been a very expansive, exciting, and sometimes exasperating couple of years for JDA Software, which has shored up its revenues streams and customer bases in retail and supply chain management software through a bunch of acquisitions, as well as losing a costly lawsuit against a big customer and having to restate its financials. Now, there are rumors going around Wall Street that JDA, which is a publicly held company, might have put itself up for sale.
The rumors broke in a story from Reuters on October 29, just as Hurricane Sandy was preparing to punch the Mid-Atlantic coast. And in the wake of the hurricane, JDA moved out its financial reports from after the market close on October 30 to November 5. Wall Street was closed on Monday and Tuesday, with the storm surge flooding lower Manhattan and knocking out the power to the lower tip of the island where most of the money and data centers are located. But it is also true that by moving its numbers out a few days, the top brass at JDA now has that much more time to get its story together about what may–or may not–be going on with a possible sale of the company.
According to the Reuters post, JDA has hired the investment banking arm of JPMorgan Chase to be its advisor for the possible sale and citing unspecified sources that claimed to be in the know, characterized the talks that JDA is having with private equity firms and “strategic buyers” as being at “an advanced stage.” I contacted JDA for comment on the rumors and have not received any word back yet, and frankly don’t expect anything but the obligatory “we don’t comment on rumors and speculation” comment that we of the press get when we catch wind of such rumors.
Praesidium Investment Management either has caught wind of a potential sale or is one of the potential buyers or an organization that might seek to block an acquisition of JDA because in a filing with the Securities and Exchange Commission on October 17, Peter Uddo, one of the two managing directors of the firm, acquired 3.58 million shares of JDA, boosting his total stake to 3.79 million shares, or an 8.9 percent stake of the company. His partner, Kevin Oram, acquired a 7.8 percent stake back in May with 3.33 million shares. Edward Johnson, who owns mutual fund manager Fidelity Management, controls another 4.24 million shares as of a filing from September 7, giving him a 9.9 percent stake in JDA. Ameriprise Financial has a 5.1 percent stake as of May 31.
Before Hurricane Sandy shut down Wall Street and before the rumors about a possible sale came out, JDA’s shares were trading at $33.95 and have been rising steadily from lows set in March when the company said the SEC was looking at its financials and a few weeks later had to restate from of its financial results. The company’s shares are now back in the same territory they were at after a jury in Texas awarded Dillard’s department store a massive and stunning $246 million in a long-running lawsuit with i2 Technologies, which JDA bought in 2009 for $396 million. The company spent $213 million in 2006 to buy supply chain specialist Manugistics. In December last year, JDA settled the lawsuit with Dillard’s for $57 million, and fortunately had just been awarded a $37.5 million patent infringement award from a different lawsuit with Oracle that added to the $25 million it had set aside for the Dillard’s suit, so it was all basically a wash.
Putting all of this behind it and building up a powerhouse in retail and SCM software are two of the reasons why JDA had a market capitalization of $1.46 billion as of October 25, the last day of trading before the rumors about a sale emerged. The company has 2,690 customers paying maintenance, 261 patents with another 87 pending, and 3,100 employees. About 43 percent of its revenues come from manufacturers, 42 percent from retailers, 6 percent from wholesalers and distributors, and another 7 percent from various services, transportation, and logistics providers. The company says that 70 percent of its customers only deploy one of its many solution areas, and that the potential to cross-sell is huge. The company has a maintenance renewal rate of around 97 percent and expects to bring in $270 million in maintenance revenues alone in 2012 with overall sales expected to be in the range of $683 million; earnings before income taxes, depreciation, and amortization are expected to be around $180 million this year. That’s a slight revenue decline and the same profits as in 2011, and includes an expected $140 million to $150 million in software license revenue and between $265 million and $270 million in consulting revenue on top of the maintenance stream.
The question is who wants to buy JDA? Oracle and Infor are obvious candidates to buy JDA if it is truly up for sale, and so are SAP and maybe even Microsoft. Time will tell, and we’ll see what JDA has to say about this.