1. Covering Analyst: Ian Strgar istrgar@uoregon.edu
JDA Software (JDAS)
Covering Analyst: Ian Strgar

2. Company Overview
Originally founded in 1978 as an IBM software provider in Canada
Sold in 1985, became JDA Software, developing inventory management software
Grown organically and through acquisitions to become a leading provider of supply chain management software (SCM)
More than 6,000 customer companies worldwide
Based out of Scottsdale, AZ

3. JDA’s Product Offerings
Software: On-premise, Managed Service, Hosted (SaaS)
Services: Supplemental to Software

4. JDA’s Software Offerings
Provides supply chain management software to primarily enterprise businesses:
Planning & Optimization Solutions (planning)
Demand management, transportation planning, allocation & replenishment
Transaction Systems (management)
Merchandise operations systems (pricing/inventory management), store systems, transportation management

5. JDA’s Service Offerings
Offer services in order to maximize usability of software
Maintenance Services
Customer support (phone, , error diagnosis)
Consulting Services
Implementation and integration
Education Services
Training programs for software
Cloud Services
Integration, error diagnosis, everything cloud (transition)

6. Industry Overview
Supply Chain Management Software (SCM). Industry categories:
Supply chain planning
Modeling
Supply chain execution
Management (real time) of planned execution
Supply chain sourcing
Optimal suppliers; Procurement
Service parts planning
Multi-Echelon supply chains; dynamic manufacturing (i2)

7. SCM 2011 Market Shares 2010-2011: 12.3% Growth 2012-2015: 9% CAGR
Project 2015 Market Size: $10.9B

8. Macroeconomic Influences
Globalization
Complex coordination of multiple product parts in multiple continents, countries, languages, currencies, etc.
Multi-Channel Retail
Pressure to offer seamless cross-channel retail experience
“Showrooming”
2016: 44% of all retail buy decision will be effected by internet access

9. Notable Competitors Oracle SAP Manhattan Associates
RedPrairie Software

10. Now to the JDA Software Business

11. Quick Financial Snapshot

12. Internal Reform
JDA Software has hit recent road bumps (financials), but is operating under a clear plan:
I2 Technologies acquisition
Revenue Model Transformation
3 year systems investment plan

13. I2 Acquisition
Acquired in January 2010 for $600M, $275M from issuing 8% senior notes
400 new customers
Advanced global logistics: multi-leg shipments
Discrete manufacturing

14. Revenue Model Transformation
Beginning 2012
Company wide initiative to change current customer’s strategies; sell SaaS to new customers
Compensation incentives
IDC on SaaS: $40.5B by 2014; CAGR of 25.3%

15. 3 Year Systems Investment Plan
Sales process review and optimization
Implement a new CRM systems
Implement a new HR system: support leadership training
(leadership replacements)
Upgrading financial and contract management system
TC= $20M

16. For these reasons, JDA acquired by RedPrairie
November 1st, Definitive merger agreement
$45 per share, $1.9B: a 16% premium to JDA’s all time high and 33% premium to JDA’s October 26th close
Tender offer commenced November 15th
Expiration: December 14th, 11:59 pm ECT, unless extended or terminated
Minimum condition: 79% of shares outstanding
“Top-Up” option to ensure majority vote (90%)

17. Discounted Cash Flow Valuation

18. Revenue Model Transition from on-premise to subscription
Maintenance services and consulting services remain strong

19. Working Capital Model Most projections done as % of revenue
Accounts receivable and accounts payable projected based off historical efficiency ratios
Days payable outstanding, days sales outstanding

20. DCF Details COGS: % of revenue
R&D: Historically 11-12% of revenue, projected the top of this range for 2013 due to final i2 integration
S&M: Historically 14-16% of revenue, projected this going forward but slightly more aggressively in 2013 (top 250 marketing plan)
G&A: Historically between 10-12% of revenue (except SEC investigation), projected to decrease due to SaaS transition, more efficiently handling costs

21. DCF Details cont…
Amortization of intangibles: projected % of revenues going forward, slight decreases (no huge acquisitions)
Restructuring charges: Projected slightly high (relative to historicals) due to 3 year investment plan through 2015
Acquisition: Left room for a small acquisition
Litigation settlement: Competitive advantage for JDA Software, projected normalized, small amounts of income from litigation settlements

22. Beta 3 year optimal time frame: balance of long/short term
Hamada: chosen to encompass industry behavior/risk while acknowledging JDA’s capital structure

23. Growth Rates
4% intermediate growth rate chosen to smooth cash flow growth; reflect more accurate FCF growth and growth decline
3% terminal growth to reflect projected economic growth into perpetuity

24. Final DCF Valuation

25. Comparable Analysis: Two Groups

26. Industry Comparables
Comparability lies in product offering, industry risk, projected growth
SAP (20%), Oracle (15%), Manhattan Associates (35%), Retalix (30%)

27. Fundamental Comparables
Comparability lies in growth rates, sizes, capital structures, and geographical revenue spreads
CA Technologies (25%), ValueClick (25%), SS&C Technology (25%), Acuity Brands (25%)

28. Metrics/Multiples
For both groups of comparables, I chose the following weights:
FCF proxies: cash generation representative of competitive offering
Remaining 30% on metrics that represent ability to generate revenues and sustain healthy margins

29. Final Relative Valuation

30. Final Valuation
-Given JDA’s current acquisition situation, how relevant is this information?
-What else can we look at to gain insights into JDA’s acquisition valuation?

31. Comparable Acquisition Analysis
Four enterprise software acquisitions: look at relevant metrics that may give insights into fair valuation for the JDA acquisition…
Weights
Product:
SCM Software CRM Software HCM Software HCM Software
Acquired By: SAP Oracle IBM SAP
Price: $4.3B $1.5B $1.3B $3.4B

32. Relevant Metrics
Acquisition Price Premium
Merger Arbitrage Spread

33. Conclusion
Final valuation PT: $43.67, a 3% discount to acquisition price
JDA’s comparable acquisition metrics are in line with comps
Bloomberg: 60+ enterprise software acquisitions since median multiple of 16x EV/EBITDA
JDA Acquisition: 11x EV/EBITDA
Growth Rates
In conclusion, I believe the JDA acquisition is fairly valued at $45 per share, $1.9B

34. Recommendation
Due to JDA Software’s RedPrairie acquisition, I am happy to be forced to recommend a sell
Svigals return: 50.2%, should we sell in the tender offer
Tall Firs return: 48.8% (sold for $44.72 on Friday Nov. 9th)

35. Questions