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JDA Software (JDAS)

JDA Software (JDAS). Covering Analyst: Ian Strgar istrgar@uoregon.edu. Company Overview. Originally founded in 1978 as an IBM software provider in Canada Sold in 1985, became JDA Software, developing inventory management software

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JDA Software (JDAS)

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  1. JDA Software (JDAS) Covering Analyst: Ian Strgar istrgar@uoregon.edu

  2. Company Overview • Originally founded in 1978 as an IBM software provider in Canada • Sold in 1985, became JDA Software, developing inventory management software • Grown organically and through acquisitions to become a leading provider of supply chain management software (SCM) • More than 6,000 customer companies worldwide • Based out of Scottsdale, AZ

  3. JDA’s Product Offerings • Software: On-premise, Managed Service, Hosted (SaaS) • Services: Supplemental to Software

  4. JDA’s Software Offerings • Provides supply chain management software to primarily enterprise businesses: • Planning & Optimization Solutions (planning) • Demand management, transportation planning, allocation & replenishment • Transaction Systems (management) • Merchandise operations systems (pricing/inventory management), store systems, transportation management

  5. JDA’s Service Offerings • Offer services in order to maximize usability of software • Maintenance Services • Customer support (phone, email, error diagnosis) • Consulting Services • Implementation and integration • Education Services • Training programs for software • Cloud Services • Integration, error diagnosis, everything cloud (transition)

  6. Industry Overview • Supply Chain Management Software (SCM). Industry categories: • Supply chain planning • Modeling • Supply chain execution • Management (real time) of planned execution • Supply chain sourcing • Optimal suppliers; Procurement • Service parts planning • Multi-Echelon supply chains; dynamic manufacturing (i2)

  7. SCM 2011 Market Shares 2010-2011: 12.3% Growth 2012-2015: 9% CAGR Project 2015 Market Size: $10.9B

  8. Macroeconomic Influences • Globalization • Complex coordination of multiple product parts in multiple continents, countries, languages, currencies, etc. • Multi-Channel Retail • Pressure to offer seamless cross-channel retail experience • “Showrooming” • 2016: 44% of all retail buy decision will be effected by internet access

  9. Notable Competitors • Oracle • SAP • Manhattan Associates • RedPrairie Software

  10. Now to the JDA Software Business

  11. Quick Financial Snapshot

  12. Internal Reform • JDA Software has hit recent road bumps (financials), but is operating under a clear plan: • I2 Technologies acquisition • Revenue Model Transformation • 3 year systems investment plan

  13. I2 Acquisition • Acquired in January 2010 for $600M, $275M from issuing 8% senior notes • 400 new customers • Advanced global logistics: multi-leg shipments • Discrete manufacturing

  14. Revenue Model Transformation • Beginning 2012 • Company wide initiative to change current customer’s strategies; sell SaaS to new customers • Compensation incentives • IDC on SaaS: $40.5B by 2014; CAGR of 25.3%

  15. 3 Year Systems Investment Plan • Sales process review and optimization • Implement a new CRM systems • Implement a new HR system: support leadership training • (leadership replacements) • Upgrading financial and contract management system • TC= $20M

  16. For these reasons, JDA acquired by RedPrairie • November 1st, Definitive merger agreement • $45 per share, $1.9B: a 16% premium to JDA’s all time high and 33% premium to JDA’s October 26th close • Tender offer commenced November 15th • Expiration: December 14th, 11:59 pm ECT, unless extended or terminated • Minimum condition: 79% of shares outstanding • “Top-Up” option to ensure majority vote (90%)

  17. Discounted Cash Flow Valuation

  18. Revenue Model • Transition from on-premise to subscription • Maintenance services and consulting services remain strong

  19. Working Capital Model • Most projections done as % of revenue • Accounts receivable and accounts payable projected based off historical efficiency ratios • Days payable outstanding, days sales outstanding

  20. DCF Details • COGS: % of revenue • R&D: Historically 11-12% of revenue, projected the top of this range for 2013 due to final i2 integration • S&M: Historically 14-16% of revenue, projected this going forward but slightly more aggressively in 2013 (top 250 marketing plan) • G&A: Historically between 10-12% of revenue (except 2012- SEC investigation), projected to decrease due to SaaS transition, more efficiently handling costs

  21. DCF Details cont… • Amortization of intangibles: projected % of revenues going forward, slight decreases (no huge acquisitions) • Restructuring charges: Projected slightly high (relative to historicals) due to 3 year investment plan through 2015 • Acquisition: Left room for a small acquisition • Litigation settlement: Competitive advantage for JDA Software, projected normalized, small amounts of income from litigation settlements

  22. Beta • 3 year optimal time frame: balance of long/short term • Hamada: chosen to encompass industry behavior/risk while acknowledging JDA’s capital structure

  23. Growth Rates • 4% intermediate growth rate chosen to smooth cash flow growth; reflect more accurate FCF growth and growth decline • 3% terminal growth to reflect projected economic growth into perpetuity

  24. Final DCF Valuation

  25. Comparable Analysis: Two Groups

  26. Industry Comparables • Comparability lies in product offering, industry risk, projected growth • SAP (20%), Oracle (15%), Manhattan Associates (35%), Retalix (30%)

  27. Fundamental Comparables • Comparability lies in growth rates, sizes, capital structures, and geographical revenue spreads • CA Technologies (25%), ValueClick (25%), SS&C Technology (25%), Acuity Brands (25%)

  28. Metrics/Multiples • For both groups of comparables, I chose the following weights: • FCF proxies: cash generation representative of competitive offering • Remaining 30% on metrics that represent ability to generate revenues and sustain healthy margins

  29. Final Relative Valuation

  30. Final Valuation -Given JDA’s current acquisition situation, how relevant is this information? -What else can we look at to gain insights into JDA’s acquisition valuation?

  31. Comparable Acquisition Analysis • Four enterprise software acquisitions: look at relevant metrics that may give insights into fair valuation for the JDA acquisition… • Weights Product: SCM Software CRM Software HCM Software HCM Software Acquired By: SAP Oracle IBM SAP Price: $4.3B $1.5B $1.3B $3.4B

  32. Relevant Metrics • Acquisition Price Premium • Merger Arbitrage Spread

  33. Conclusion • Final valuation PT: $43.67, a 3% discount to acquisition price • JDA’s comparable acquisition metrics are in line with comps • Bloomberg: 60+ enterprise software acquisitions since 2002- median multiple of 16x EV/EBITDA • JDA Acquisition: 11x EV/EBITDA • Growth Rates • In conclusion, I believe the JDA acquisition is fairly valued at $45 per share, $1.9B

  34. Recommendation • Due to JDA Software’s RedPrairie acquisition, I am happy to be forced to recommend a sell • Svigals return: 50.2%, should we sell in the tender offer • Tall Firs return: 48.8% (sold for $44.72 on Friday Nov. 9th)

  35. Questions

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