Dive Brief:
- JDA Software Group announced on Friday that private equity investment bank Blackstone Group will infuse $570 million into the company. Blackstone claims a 40% stake in the supply chain management software provider in the process, the Wall Street Journal reports.
- Industrial conglomerate Honeywell International was reportedly close to sealing a $3 billion deal this week to acquire JDA. But JDA’s majority stakeholder, New Mountain Capital, chose instead to accept Blackstone's structured financing deal, first proposed last week, which includes preferred stock and equity warrants along with a guaranteed return of 7.5%.
- The Journal reports that Blackstone will reduce JDA's total existing debt by $500 million, and cut interest charges by $70 million a year. It will also provide funding to drive product development in cloud-based services and other areas. Blackstone’s investment is expected to be completed early in the fourth quarter.
Dive Insight:
JDA Software, a supply chain software firm with about 4,000 wholesale distribution or retail customers, is wading in about $2 billion of outstanding debt, roughly nine times its earnings before interest, taxes, depreciation and amortization, according to the Journal. Blackstone reportedly passed on the opportunity to buy the company (and its debt) outright, opting for a minority investment.
The Journal reported on Thursday that the deal was contingent on the outcome of the proposed JDA/Honeywell merger. But it seems New Mountain passed over Honeywell's interest in light of Blackstone's acceptance of the structured financing deal.
While JDA is by no means thriving financially, it is still the world’s third largest supply-chain software provider. Dwight Klappich, an analyst at Gartner, said the Blackstone deal is better for its long-term prospects than Honeywell's proposed acquisition. “Industrial manufacturing companies don’t have a good track record of successfully working with business application vendors,” he told the Wall Street Journal.
New Mountain Capital privatized JDA in 2012 and merged it with another company, RedPrairie, in a $1.9 billion deal. Earlier this month, Wal-Mart rolled out a new employee scheduling system developed in collaboration with RedPrairie: Dubbed Customer First Scheduling, the software prioritizes scheduling for peak shopping hours by calculating foot traffic and sales data from every department in the store, then assigns staffers accordingly.
JDA's decision is a blow for Honeywell, which is building up its supply chain and warehouse assets and expertise (taking cues from Amazon, the e-retail giant that has shown that high-tech and efficient fulfillment are the keys to winning big in e-commerce). Last month Honeywell bought Intelligrated, a provider of warehouse fulfillment solutions, from private equity group Permira Funds for $1.5 billion.
