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Gartner sees sense in JDA re-financing

23 August 2016

The supply software leader is holding debt and had been an acquisition target of Honeywell.

JDA Software Group has announced private equity investment bank Blackstone Group will inject $570 million into the company in exchange for a 40% stake in the supply chain management software provider.

Industrial conglomerate Honeywell International had earlier bid $3 billion for JDA.

The Blackstone deal is said to cut JDA's debt by $500 million and cut interest charges by $70 million a year.

Gartner analyst Dwight Klappich said: "There are three ways private equity can re-coup an investment – sell the business, go public, euphemistically re-finance the house. This is the latter. It removes some of the debt burden, it frees up capital to invest and it keeps the business on the same basic path that it has been on for the last 2 years and its business has been improving."

Selling a business of this size is hard because there are only so many companies with the financial ability to do this.

"The mistake many industrial companies make is thinking that because a growing percentage of their business is “software” they believe they understand the software business and that there is strategic synergy between what they currently do and the business applications space."

 

Klappich added: "While Honeywell is a very good company, and it has capital, the track record of industrial companies buying into the “business application” space has been terrible. The most notable but certainly not the only was Invensys buying Baan which ended up being a disaster. That acquisition proved bad for everyone as well as bad for the market.

"It is not because these firms are not smart and talented it is normally due to lack of strategic, market and offering synergies and expertise.

"The mistake many industrial companies make is thinking that because a growing percentage of their business is “software” they believe they understand the software business and that there is strategic synergy between what they currently do and the business applications space.

"The issue however for industrial companies is the vast majority of their software is operational technology (OT) or the domain of engineers and not information technology (IT) which is the purview of IT. They are not the same and success in one has no influence on success in the other. Consequently there was more potential risk with Honeywell buying JDA than this refinancing which keeps JDA on its current path."

Last month Honeywell bought Intelligrated, a provider of warehouse fulfillment solutions.

 
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