E2open Becomes a Private Party – Now What about the After Party?

Private-equity firm Insight Venture Partners (“Insight”) plans to acquire supply chain software company E2open. The all-cash deal of $273 million represents a 41% premium over its previous valuation at the time that the deal was announced. Before the announcement, E2open was only trading at roughly 2.5 times revenues due to multiple quarters of financial misses in 2014 relative to Wall Street expectations. Interestingly, the stock plummeted from nearly $30 per share almost a year ago to nearly $5 per share last month, even though the revenues and earnings barely changed.

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The firm retained Merril Lynch (BofA) to shop it around and created a poison pill a few weeks ago to prevent any bargain shoppers to take it over without long-term interests in mind. The deal is pending shareholder approval, but should close, notwithstanding the numerous law firms filing “investigations” to ensure current shareholders are getting a fair deal. Another interesting twist is that the hedge fund Elliott Management is also a major investor. Elliott is a New York-based firm that has been raiding (in a good way) and turning around (average annual returns of about 15% per year) many brand-name firms – increasingly in high-tech such as BMC, Novell, Juniper Networks, etc.

Obviously, Insight and Elliott see some opportunity here, and with E2open trading at a multiple that is 3 times less than an equivalent multiple of what rival GT Nexus was allegedly being shopped around (e.g., to SAP) by Morgan Stanley, the smart money seems just that. As an aside, Insight is no stranger to the space, and has invested in firms such as Procuri (now part of SAP via Ariba), Think Systems (now part of JDA via i2 Technologies) and Alibaba.

Eighteen months ago, we uncharacteristically penned an entire article on the attractiveness of E2open to someone like SAP or even more so to Oracle. But, they are sort of busy right now with other development and integration priorities, so it will be very interesting to see what they do with the firm besides cutting costs and instilling more rigorous management discipline. There will be no shackles on investment decisions based on legacy ownership (i.e., IBM might not be thrilled about the firm being sold to Oralce), and there are many possible scenarios:

  • Do a roll-up of similar industry networks (e.g., Covisint in automotive, Elemica in chemicals).
  • Prep the firm for an acquisition at a targeted firm like IBM, SAP, Oracle, etc. Francisco Partners sold GXS to Open Text for over $1 billion. Marlin Equity flipped Emptoris and sold it IBM for hundreds of millions.
  • Sell the firm to a major contract manufacturer looking for a new digital business strategy. For example. Flextronics launched supply chain Elementum (indirectly), so it’s not a huge stretch (see our Elementum analysis here). Also consider Amazon’s move into B2B as an open B2B marketplace for indirect spend purchases (which, of course, is a direct transaction on the sell side) and how that gives them a big data information advantage. Another example is in healthcare with Novation’s creation of a firm called Aptitude (more details on this firm can be found on our sister site Healthcare Matters).
  • Add adjacent pieces of functionality to create a supply chain information network. In our minds, it’ll never really be that until they add a direct materials sourcing mini-suite to the stack. Top of the list in our mind is Polydyne, which is a tiny firm with a compelling customer base. This move would be synergistic to the others.
  • Do something truly disruptive. For example, you could also buy Infor. Crazy, you say? Look into E2open’s capabilities for “implementing OAGIS in the cloud.” Then look into Infor’s Intelligent Open Network built on OAGIS standards. Now add a splash of industrial supplier discovery like ThomasNet (e.g., tying the network to product level CAD/PLM data) or MFG.com (which has a built in sourcing application) – and things get very interesting. We doubt that Insight/Elliott will have the vision or patience for this, though, but it’s still OK for us supply geeks to have our little dreams, right?

Anyway, we’ve not yet been fully briefed by E2open, and we’ll report back when we can get some additional insight on the deal and the implications for practitioners and providers alike. Stay tuned.

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Voices (4)

  1. Pierre Mitchell:

    Yup, they had a window with that big market cap to acquire more firms, but it’s always easy to say, and hard to do unless you’ve really ‘industrialized’ the post-merger integration process

  2. Aloke Bhandia:

    Good writeup. E2Open also did some nice window dressing by increasing short-term revenue with nifty acquisitions such as Serus (in semiconductor vertical) last year.

  3. Pierre Mitchell:

    “Prognistication”! I don’t even own a crystal ball.
    Maybe analysis and strategy (i.e., scenario planning) would be fine too. 🙂
    Yes, a bargain indeed. Funny, I worked at Timberland back in early 90’s doing systems work at the manufacturing plants, and there was a huge speculative market that cropped up and disappeared in the course of a year even though inside the firm very little had changed. If you have a few quarters where you miss on a few big deals and you miss on Wall Street guidance for a few quarters, you will get punished. PE firms are a different form of punishers, but they do generally have wisdom over the crowd (aka ‘smart money’), and we’re curious to see where they’ll take e2

  4. Aloke Bhandia:

    Excellent prognostication. The selling price was a huge bargain.

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