Do you know how some couples need to take a break from each other, and then they get back together after some time, get married, and live happily ever after?
JDA and i2 (an ARC client) first announced their engagement in August 2008. Then as the financial market meltdown intensified, the wedding was called off in December, with JDA paying i2 a $20 million termination fee. Yesterday, after spending almost a year apart, JDA announced that the wedding is back on, both companies stronger and wiser than before.
You can read my reaction to the merger the first time around here, and my comments when the merger was terminated here. Instead of repeating myself again today, I’ll focus on what’s different this time around.
- i2 and JDA better understand each other’s strengths and capabilities, and over the past year, the two companies have reached a middle ground. Under the leadership of CEO Jack Wilson, i2 went back to being a software company, with a renewed focus on developing innovative software solutions. In previous years, the company had moved strongly in the direction of managed services, which led me to call them “a services company that provides software.” Although managed services remains important at i2, and will remain a growth engine and differentiator moving forward, software innovation is now on the front burner again. In JDA’s case, it seems (based on yesterday’s comments by JDA CEO Hamish Brewer) that the company better understands and appreciates how managed services and software-as-a-service are transforming the industry. The last time around, JDA barely acknowledged i2’s strengths and capabilities in these areas. The focus, from a financial standpoint, was strictly on license fees and maintenance streams. While these metrics remain important for JDA, I sense the company now has a broader and more enlightened view of the market. In short, I believe JDA values managed services more today than it did a year ago.
- In many ways, i2 and JDA are both stronger companies today than a year ago. i2’s organizational structure and product footprint was too bloated and complex for a company its size, part of the reason why the company struggled to grow. Jack Wilson reorganized the company, making it leaner and better focused on growth. Unfortunately, the economy worked against i2 this year, but the company is operating more efficiently and has a cleaner balance sheet (less debt) than a year ago (see i2’s third quarter results). For its part, JDA has outperformed many of its peers in the software industry during the recession. For the nine months ended September 30, the company’s adjusted EBITDA increased to $69.5 million from $69.3 million in the same year ago period, and cash flow from operations was $80.5 million, compared to $70.7 million in the same year ago period (see JDA’s third quarter results).
- The deal was structured to succeed this time around. Without going into the details, the current deal structure has a better balance of cash and stock, and if Plan A doesn’t work, there’s a Plan B. Both companies recognize that having the deal fail again would be detrimental to shareholders, employees, and customers.
Some other interesting observations, from me and my colleague Steve Banker:
- The JDA brand has always been synonymous with retail, even after it acquired Manugistics. Now the combined company will have more revenues from manufacturing and distribution. Even so, JDA still has to strengthen its brand among manufacturers, particularly in the discrete industries, many of whom still view the company as a retail-centric software vendor.
- One of the stated objectives of this merger is to establish a leadership position in global transportation solutions. I don’t recall if this was explicitly stated the first time around, but it was mentioned several times by JDA in yesterday’s conference call. i2 and JDA (via the Manugistics acquisition) have two of the largest installed bases of TMS in the industry. From an overall product and platform perspective, I give i2 the edge, but JDA has significantly improved its offering in the past couple of years (see recent press release). It remains to be seen how the combined company will rationalize its TMS offerings, but it’s a sure bet that JDA will keep both platforms around into the foreseeable future.
- The combined company will have over 1100 employees in India, split between Bangalore and Hyderabad. The big opportunity for the combined company is not so much in using these resources effectively for product development, but in leveraging them to expand and scale its managed services offerings.
Will i2 and JDA (and their customers) truly live happily ever after? It remains to be seen, but based on the points discussed earlier, I’m more positive about the merger today than I was a year ago.
