Mergers and Acquisition are one of the important parts of the business world especially in the era of globalisation. There have been lots of mergers and acquisitions in the last 5 years. Merger means when two companies join to form a new company. Acquisition means when one company takeover another company and the acquired company loose its existence. I researched a lot of companies who have been in mergers and acquisition in the last five years. The company I have chosen is JDA InfoTech ltd who acquired Manugistics in 2006. This report will discuss the aims of the acquisition and the extent to which it has been fulfilled and the reasons of acquisition.
REVIEW OF COMPANIES: JDA AND MANUGISTICS
JDA was formed in 1978 by James D. Armstrong in Calgary, Alberta, which grew from strength to strength to be one of Canada's largest IBM software providers. The company delivers quality packaged software and consulting services that addressees the retail industry's information management and transaction processing needs. The new corporate headquarters is inArizona. JDA has acquired many companies like E3, Arthur, etc. Its main acquisition was of Manugistics. Manugistics was formed in 1969 in Bethesda, Maryland. The company was developing and marketing a broad range of computer software and services which included international computer time-sharing services as well.Manugistics suffered for 9 years before they were acquired by JDA in 2006.
According to Weston and et al (2004) the economic role of Merger and acquisition helps to assist organisation to achieve and maintain their competitive advantage by anticipating and adjusting to the change in the business environment. There are different types of mergers such as Horizontal merger, vertical merger and conglomerate merger. The JDA and Manugistics merger is called as horizontal merger which means that it is a combination of two firms in same line of business. JDA Software Group, Inc. is the world's leading supply chain consultant, helping companies to optimize their operations and improve their profitability. JDA global business efficient has more than 5,800 retailers, manufacturers, wholesaler-distributors and services industries companies with deep expertise and innovative solutions. Manugistics was acquired by JDA in July 2006 for $211 million cash to expand its end-to-end supply chain management which offered and brought unparalleled optimization to the world market. The main aims of this acquisition were to expand and grow with solutions for manufacturing, demand and replenishment, price and promotions optimization, and transportation and logistics. JDA's main competitors were Manugistics, SAP and Oracle. But after acquiring Manugistics JDA will have a complete solution for its customers by using Manugistics innovative techniques which helped to defend itself from the onslaught of Sap and Oracle.
Before the acquisition, Manugistics had offices in over 30 countries and was referred to as one of the ‘founders' of supply chain management. The company achieved first position in the market for demand, supply and transportation planning solutions and over 1,200 customers including companies like Heinz, Coca-Cola, Defense Logistics Agency, Kraft Foods, Church & Dwight and Tyson..Since the acquisition in 2006, JDA has made many key investments in research and development for innovation, expansion and leverages the Manugistics solutions.
The main motive of this acquisition was to create synergy to become a market power and to enter new markets where JDA has never been entered into. Manugistics reputation as a big company helped JDA to increase its market growth and power after the acquisition. Other reason of acquisition was that JDA wanted to diversify its company into new markets and into companies. Diversification reduces risk. But diversification does not really mean that it is going to be a gain for the company because it generally makes it easier for the stockholders than the corporations. This acquisition really helped JDA to diversify its business into emerging markets. Manugistics was number 2 company in the world before the acquisition by JDA. Manugistics was leader in the area of supply chain planning software and was among the most influential and successful firms in the industry for many years. But Manugistics was facing financial problems from many years and had to pay off its debts in the coming years. This acquisition was much unexpected as JDA was an underdog to acquire this company.
When we talk about the reasons of Mergers and Acquisition in general they include:
According to Allen and et all, cash rich companies prefer to use their cash in acquisition than to distribute it as extra dividends to shareholders. Diversification reduces risk. But it does not mean that it is going to be a gain for the companies as diversification is good for stakeholders and less good for corporation.
-Increase Earnings per share:
Some acquisition does not always offer economics gains but their earnings per share keeps rising over the year. Some companies acquire firm with a low price earnings ratio so as to play the bootstrap game. But this rarely happens now.
--Lower financing costs:
When two companies mergers the cost of borrowing decreases. The interest paid by an individual company is more than that of the companies merging together.
JDA used to use traditional technique of supply chain management but after the acquisition of Manugistics their additional size and innovation have enabled them to optimally supply goods to the consumer. The combination of JDA and Manugistics has led JDA become and uniquely positioned to provide retail, manufacturing, wholesale distributor and service industries with solutions that uses supply chain management from raw material to the point of the sale.
JDA after acquiring Manugistics launched integrated solutions in Demand Management, Replenishment, Order Optimization, and Advertising and Promotions Management in 2007. JDA launched the Web-based, state-of-the-art Transportation and Logistics Management suite version 7.5 in September 2008, which enhanced and helped the rich usability and the rich workflow for the customers.This was only possible because of the JDA acquiring Manugistics in 2006.
After the acquisition, JDA has also leveraged and has expanded the Manugistics presence in India to create the JDA Centre of Excellence. The JDA Centre of Excellence allows JDA to extend its current capabilities and resources to provide the customers with greater levels of service, innovation and flexibility by using additional resources in India from product development, services and information technology. The combined JDA and Manugistics solution offered a robust new solution portfolio, driving collaboration and innovation across vertical industries and connecting trading partners with an aim on operating in today's demand driven world markets.
There has been a recent survey by UBS Investment Bank. Survey showed some factors which are called as success factors:
Strategic fit: It becomes easier for companies to exploit synergies in horizontal deals
Size: smaller companies/firms are easier to integrate
Ownership: private acquisitions produce better results
Financing: cash deals do better in post-acquisition term
Profitability: more profitable targets perform better
When we relate these factors to JDA acquiring Manugistics some of the factors above fully merge together with the aims of the acquisitions. JDA and Manugistics were strategically fit for the acquisition as both the companies were in the same line of business which helped them to create synergies. The deal between the companies was a cash deal as JDA paid its entire amount to Manugistics in cash which helped produce a better result for the company.
The aim of every company is to have good financial results every year and to grow and expand in the world. When we talk about JDA after the acquisition of Manugistics it has grown from strength to strength.
The main aim of this acquisition was to grow and expand in the world market. This aim was successful when we look at the balance sheet of JDA for 2007 after acquisition as compared to 2006.
Adjusted EBITDA (Earnings before interest, taxes, depreciation and amortization)
Earnings per share
After the acquisition of Manugistics in 2006 the gross profit has increased in 2007. This shows an improvement in the strength of the company after the acquisition. For the year ended December 31, 2007, total revenue increased to $373.6 million as compared to $277.5 million for 2006. JDA increased software revenue in 2007 by 50% over prior year to $73.6 million. JDA's EBITDA has also increased from $40,636 in 2006 to $88693 in 2007. The Company also generated 28% growth in software license sales in 2007, including 30%from JDA core products and 18% from the acquired Manugistics products. Earnings per share also increased from 0.58 per share in 2006 to 1.33 per share in 2007 after the acquisition. JDA was not that a big company as Manugistics.
The main aims of this acquisition were to expand and grow with solutions for manufacturing, demand and replenishment, price and promotions optimization, and transportation and logistics. This acquisition helped JDA to achieve these objectives within 1 year of its running after acquisition. It helped them to create solution such as JDA transportation planning, JDA Master planning, JDA fleet management and so on which created more business value to the company. After the acquisition JDA has grown from mere a company to the most successful supply chain consulting company in the world. In 2010, JDA also acquired I2 which was the number 1 company in this sector. JDA acquiring both Manugistics and I2 becomes the world's largest supply chain consulting company.
“A report by management consultants Hay Group, Dangerous Liaisons: Mergers and Acquisitions - The Integration Game, reveals that 91 per cent of mergers fail to achieve their stated objectives. In addition, well under a third - 28 per cent - of business leaders told Hay Group that their merger created significant new value.” But this acquisition really contradicts the statement. This acquisition was done with an aim of expanding and growing with solutions for manufacturing, demand and replenishment, price and promotions optimization, and transportation and logistics and also to create synergy to become a market power and to enter new markets. This aim was successful which is very obvious when we look at the post acquisition financial report of the company which shows an increase in profit and increase in the software revenue which was the main motive of the company before acquisition. JDA was facing a tough competition from SAP and Oracle but this acquisition of Manugistics helped JDA to face and challenge its competitors. JDA has be become the one best supply chain consultant after Manugistics and latest by acquiring the number 1 company I2. Thus, Mergers and Acquisition does not always fail sometimes they are successful. This acquisition is among the 9% of the report of management consultants of Hay group.
WEBSITE: Adrie van den Luijt cited at: http://dofonline.co.uk/economy/less-than-one-third-of-mergers-creates-new-value9284.html
Weston.J.F, Mitchell M.L, Mulherin J. H (2004) Pearson Prentice hall