First it was Intermec Inc., acquired in late 2012 for $600 million. Then it was Intelligrated Systems Inc., acquired in June for $1.5 billion. Now Honeywell International Inc. is poised to take its biggest leap yet into the distribution center market with a rumored $3 billion purchase of software provider JDA Software Group Inc.
The acquisitions of Intermec, which makes industrial printers and provides mobile computing and radio-frequency identification (RFID) services, and Intelligrated, which provides material handling automation services, strengthened Honeywell's hand in the fast-growing segment. But the rumored purchase of Scottsdale, Ariz.-based JDA, first reported last evening by Reuters, takes Morris Plains, N.J.-based Honeywell's strategy to another dimension: The company would offer a one-stop shop for businesses to purchase all the software and equipment needed to run a warehouse. A JDA acquisition would also open up the software firm's vast customer base to the full range of Honeywell's hardware-based products and services.
In the short term, a purchase would throw a financial lifeline to JDA, which is reportedly struggling under a $2 billion debt load. It would offer an exit to JDA's owner, New York-based private equity firm New Mountain Capital, which took JDA private in late 2012 for $1.9 billion in cash and merged it with supply chain software firm Red Prairie Corp., another New Mountain unit.
The long-term consequences could be of seismic proportions for the distribution center space. JDA's forte lies with providing software services to support supply chain planning, merchandising, and pricing, areas that are critical as businesses look toward omnichannel solutions to support the rapidly growing but maddeningly complex world of e-commerce fulfillment. It has a strong position in cloud computing, where users access data from web-based servers at any time and from virtually any location. With the Red Prairie integration, the combined firm had a solid position in the Big Three of distribution center technology: transportation management systems (TMS), warehouse management systems (WMS), and labor management systems (LMS)
If it buys JDA, "Honeywell can offer companies a turnkey solution that includes both software and hardware for running a distribution center," said James A. Cooke, a supply chain management journalist, consultant, and author.
Distribution center managers would benefit by utilizing software that would require less up-front programming and setup to direct and control the operation of DC equipment, Cooke said. "In theory, that should make DC automation easier," he said.
The soup-to-nuts approach could be a double-edged sword, Cooke noted. While companies would benefit by having all services consolidated with one vendor, they may not be enamored with all of the offerings under that umbrella, he said. With that in mind, competing material handling companies would need to cozy up with other software firms to ensure they offered a viable alternative to the Honeywell model, Cooke said.
Traditionally, companies seeking material handling solutions would first focus on the hardware and then purchase the software to manage it. With a JDA acquisition, Honeywell may upend that model so that businesses would first look at software to drive their hardware decisions and investments, according to Cooke.
An acquisition would also be a loud reply to German giant Kion Group AG, which in June acquired Atlanta-based systems integrator Dematic Corp. for US$2.1 billion. Kion, the world's second-largest manufacturer of industrial trucks, will use Dematic to enter the lucrative segments of warehouse automation and logistics systems integration.
Kion said at the time that it plans to become a "one-stop supplier for intelligent supply chain and automation solutions" by offering a catalog of products that "ranges from manually operated industrial trucks to complete, fully automated warehouses."
For Honeywell, a purchase of JDA, combined with the acquisitions of Intermec (which also included the warehouse voice software and hardware provider Vocollect) and Intelligrated, are part of an effort to goose stagnant sales by further penetrating a high-growth space. Honeywell's "core organic" sales in the second quarter fell 2 percent, to about $10 billion, while total sales rose 1 percent, boosted by the impact of acquisitions. The company's aerospace division, its largest, reported a 1-percent overall sales decline in the quarter and a 2-percent organic core sales decline. Its Automation and Control Solutions division, where the supply chain acquisitions were classified, reported a 9-percent increase in total sales, but a 1-percent drop in organic sales.
Honeywell also revised downward its 2016 sales outlook to between $40 billion and $40.6 billion, from between $40.3 billion and $40.9 billion.
The company also announced that it would split its automation and control unit into two segments: Home and Building Technologies (HBT) and Safety and Productivity Solutions (SPS). The material handling operations will fall under the SPS segment, which will be run by John Waldron, who has spent the past year as president of Honeywell's Sensing and Productivity Solutions business unit that had been formed by the combination of Honeywell's Scanning and Mobility (HSM) and Sensing and Control businesses.