Most Japanese major companies, which at one time were leaders in consumer electronics, are struggling to find their feet in a world that has moved to digital software.
Electronics major Panasonic Corporation announced the acquisition of Blue Yonder, formerly JDA Software, a supply chain management specialist, for $7.1bn. In March, Hitachi took over GlobalLogic, a Silicon Valley software engineering company, for $9.5bn.
“As everything becomes digital, it’s becoming increasingly difficult to differentiate through hardware,” Yasuyuki Higuchi, a Panasonic executive who heads its connected solutions business, said in an interview. “Naturally we have a real sense of crisis and we need to have software.”
Higuchi was earlier with Microsoft and headed their Japanese business. He initiated the move to acquire Blue Yonder with an initial 20 percent stake in the company last year.
Panasonic acquired the remaining 80% of the Scottsdale, Arizona-based Blue Yonder in April. The acquisition should complete in the second half of this year.
But there are concerns in the market that the company has over-reached in paying such a huge price. Panasonic has had a history of struggle with most of its acquisitions. Its two big acquisitions: the 1990 purchase of MCA, then the owner of Universal Pictures, for $6.6bn, and the $7.2bn takeover of rival Sanyo Electric in 2011 have been wrought with growth trouble. In 2015, Panasonic bought Hussmann, a US manufacturer of refrigerated display cases, for $1.6 billion, which too was questioned by analysts. “We believe Panasonic has a weak track record especially when it comes to large deals,” Jefferies analyst Atul Goyal said in a recent report.
But Higuchi is confident of the deal and said that the Blue Yonder agreement is an investment in a software company with predictable and stable revenues. The US supply chain specialist has 3,000 clients, including Coca-Cola and Walmart. It generated $1bn in sales last year, of which 67 per cent were recurring revenues. “With such a high recurring ratio, their revenue is mostly set like a utility,” Higuchi said. “We have also managed to retain the management so the success ratio is very high.”
But analysts are skeptical of the move and feel that the 20 percent Panasonic stake in the company would have brought the same benefits as a full acquisition.
Panasonic plans to expand Blue Yonder’s client base in Japan and will utilise the US company’s software to enhance supply chain management of its hardware, such as security cameras and sensors.
Citigroup analyst Kota Ezawa believes that the latest acquisition addressed some of the serious challenges faced by Panasonic. “They need a recurring business model, a large software asset and a gateway and distribution channel to do business out of Japan, so these were all things that were required to survive competition. So it fills a few of the gaps, but obviously this deal is not the entire answer to how Panasonic shifts to software and subscription services,” Ezawa said.
Panasonic’s takeover of the company comes barely a month after Blue Yonder made a filing with the US Securities and Exchange Commission (SEC), for an IPO. Blue Yonder CEO Girish Rishi said that Panasonic came up with their offer just after they initiated this move, which made sense as they had a three-year history of business with each other, and Panasonic already had a 20 per cent stake in the company.
He adds: “Panasonic is a pit stop… What was attractive to us about going under the Panasonic umbrella is that our vision, our strategy, our culture will be preserved, and it will get accelerated. We will organically, and very selectively, continue to build a company for posterity’s sake.”
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