E2open Acquires icon-scm: More Than Meets the Eye

E2open just announced that it plans to acquire privately held supply chain vendor icon-scm for $34M ($18M cash, $9M stock, and $7M in assumed debt obligations). The deal is expected to close in 90 days.

icon-scm is a niche High-Tech SCM vendor with approximately $10M in revenues (thus a 3.4X multiple on revenue) that was born out of some custom APS (Advanced Planning & Scheduling) development at HP in the early 90s before being spun out commercially. It has large and mid-size complex customers across the High Tech Supply Chain from OEMs to Contract Manufacturers to Distributors and Component Manufacturers.

I’ve looked at icm-scm and it provides a very interesting solution suite on many dimensions:

  • An S&OP suite that starts with demand management (forecasting, planning, and collaboration) and then translates it to both inventory planning and supply planning modules that similarly have strong collaboration components to them
  • The ability to not only forecast demand along multiple streams (steady-state, seasonal, event-based, etc.) but also to translate the volumes and variability to the supply side, including inventory planning (whether internal or in a VMI scenario) and capacity planning (whether internal or at suppliers)
  • Supplier collaboration that is more than just communicating an aggregated supply plan to suppliers by SKU by time period. It provides more granular demand insights while also formalizing the process for supplier commitments. The HP Procurement Risk Management (or “Price Risk Management” in an earlier incarnation) was built around this notion of optimizing upside supplier capacity commitments/contracts (that have an “option cost”) against the un-dampened demand signal (i.e., volumes and variability – not just volumes).
  • The ability to dynamically simulate and re-adjust the plan based on dynamic conditions (which have hopefully been planned for upstream, but not necessarily) that respect existing commitments and service levels on both the demand and supply side. This is a crucial feedback loop that helps re-set planning parameters more appropriately (e.g., specific buffer stock levels, positioning levels by tier, etc.) and also tie in contractual commitments (similar to how rebates are factored in to supply allocations in E2Open’s current product suite).
  • A DataHub product that facilitates integration into various backoffice supply chain applications – with many adapters built to integrate with various SAP applications. This will be key functionality to roll into the E2Open network and will be some of the initial integration work planned for post-acquisition activities in 2013.

So, it might appear a more holistic and arguably better mouse trap from a broader supply chain perspective than E2Open’s current product set, but why would E2Open pay a premium to acquire a niche vendor with somewhat overlapping functionality in an industry where it’s already a mindshare leader – especially given that icm-scm is more of a traditional on-premise oriented applications vendor?  There’s a back story here and broader context to this announced acquisition that meets the eye and we’ll discuss that in our next post.

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