The potential Honeywell (NYSE: HON) acquisition of JDA (see attached research note) not only fits this Fortune 100 company’s growth strategy, but could set off a wave of investments, mergers, divestments, and acquisitions in the supply chain technology space.
This potential transaction underscores the strategic importance of supply chain, and the shift from legacy on-premise solutions to cloud-based systems that can be adopted by any sized business, and deliver faster time to value. JDA’s largest shareholder, New Mountain Capital, has been actively seeking a buyer, and if a deal does materialize, Honeywell could be a stabilizing factor for JDA and its customers, - at least in the near term. In the mid-term, Honeywell would likely rationalize the JDA portfolio; the category most likely to see reduced investment (or potentially even a divestiture) will be their legacy retail offerings that cannot support omni-channel or cloud deployments. Honeywell will likely double-down on core supply chain and create a suite of modern, high-value multi-tenant supply chain solutions. Strategic interest from Honeywell in an established supply chain vendor such as JDA highlights the possibility that supply chain spending will increase over the next five years as companies seek accelerated growth, competitiveness, and aim to squeeze additional costs out of their operations.
Honeywell has been methodically restructuring itself into a growth company via organic investments and acquisitions. In part, this reflects the competitive pressure from GE which has made a significant and highly public commitment to software generally and IoT (Internet of Things) specifically. In 2015 Honeywell spent $5.8 billion on acquisitions, and in July of 2016 announced a $1.5 billion acquisition of Intelligrated (transaction pending) – a firm complementary to JDA’s Warehouse Management System (WMS) capabilities. Honeywell also happens to be a strategic JDA WMS partner. In addition to a large stream of maintenance revenue (which MGI Research estimates it to be ~$400 million), Honeywell would be buying two decades of solutions to supply chain business problems, domain expertise, patents, and a loyal customer base.
This potential acquisition, if it happens, will backstop and stabilize JDA. Current customers should neither panic nor halt their planned investments in JDA’s core offerings. The wider story is that – even if this deal isn’t consummated – it signals that Fortune 100 businesses such as Honeywell and GE among others, view supply chain as such a critical capability and business opportunity, that instead of licensing a solution, they’d consider acquiring the entire software firm. There is a new arms race underway in business software and leading companies are investing strategically in the consumer-connected supply chain.