We usually try to emphasize trends in supply chain IT in this space, but sometimes it’s fun to just make outright educated guesses.
2015 was a year in which there was significant merger and acquisition activity across the logistics landscape, and it was no different in the software industry. The biggest deal in terms of global transportation management was probably Infor’s $675 million purchase of GT Nexus, an acquisition made primarily to leverage GT Nexus’ expertise in networked visibility, Infor told American Shipper recently.
But there were other big deals, including UPS’s near $2 billion purchase of Coyote Logistics (a deal made, in part, to capture Coyote’s freight brokerage technology), and smaller deals, like Mercator International’s purchase of rate management software provider Catapult International. Descartes was, as usual, busy in the acquisition space, buying trade compliance-related companies (like MK Data) and supply chain efficiency providers (like BearWare).
There’s a saying that every software company is for sale at the right price. Dell, for instance, bought the cloud computing and data storage company EMC for a staggering $67 billion in October. We, of course, won’t see a deal that big in the logistics and trade software industry, but where could we see activity?
When JDA Software merged with Red Prairie in 2012, it seemed to herald an era where powerhouse transportation management systems providers might link with their warehouse management systems counterparts. But that hasn’t come to fruition, perhaps because WMS is largely an enabler for contract logistics providers while TMS is more important to shippers and freight brokerages.
This year saw Amber Road acquire ecVision, a supplier management portal that gave its customers the ability to integrate Amber Road’s trade compliance and transportation management systems with new sourcing tools. Will we see others follow suit? Perhaps not, since Amber Road is one of the few multi-discipline software companies to focus so intently on its trade compliance capabilities (others include Kewill, which bought the IBM Sterling’s cloud-based TMS in October 2014, CargoSmart, and Descartes).
For the most part, however, the supply chain software industry has segmented trade compliance from transportation. Some may indeed offer modules in one of the other categories, but the two are legitimate strengths for few providers.
What most of 2015’s deals did have in common was a desire by the acquirer to add complementary technology, not to grow share within a single market. The software space, like the logistics industry in general, is tremendously fragmented. That makes it hard for all but the biggest players in each area—be it procurement, TMS, WMS, global trade management, rate management, or others—to get significant share though an acquisition alone.
So what does that portend for M&A in supply chain software?
For one, you can expect the companies that have been acquisitive on a tactical level to continue to function that way. There are companies that grow organically and others that are adept at growing through addition. Don’t expect that to change.
I don’t expect too much major acquisition activity in the GTM space, simply because it’s still an underdeveloped market. In our American Shipper GTM Landscape Study earlier this year, we catalogued more than three dozen providers, and heard later from others we missed, but many of those companies serve distinct customer segments or provide niche solutions. Much of the GTM market is owned by a half dozen or so providers, none of which look all that likely to buy one another for one of two reasons: either they have a steady stream of business from a massive installed base (namely Oracle and SAP) or they are seen as a top-level product in a market that is growing fast.
We’ve written in the past that the GTM market has tons of room to run, but according to sales people at the major independent providers, it can be a slog to convince companies to proactively streamline their compliance processes through automation. That is, many customers come to GTM providers in a reactionary manner, after they’ve been hit with a customs audit or penalty, or been tasked with integrating the compliance department of a newly acquired company. In any case, a merger of two major providers seems unlikely, simply because that may mean them missing out on a growth phase.
So here’s my big prediction for 2016: some sort of shakeup in the TMS space. There are so many players of all stripes and sizes, it seems like something needs to happen. Remember that JDA itself helped consolidate the industry throughout the 2000s (through deals for Manugistics and i2), and Oracle acquired G-Log. Those deals set loose some of the original innovators in the industry, many of whom have started third generation TMS platforms. It seems unlikely that all will survive, and more likely that an established provider or two will make some emergent technology providers offers they can’t refuse.
After all, in the software business everyone is for sale, for the right price.
This column was published in the December 2015 issue of American Shipper.