JDAS

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JDA Software (JDAS)
Covering Analyst: Ian Strgar
[email protected]
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
JDA’s Product Offerings
› Software: On-premise, Managed Service, Hosted (SaaS)
› Services: Supplemental to Software
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
JDA’s Service Offerings
› Offer services in order to maximize usability of software
› Maintenance Services
– Customer support (phone, email, error diagnosis)
› Consulting Services
– Implementation and integration
› Education Services
– Training programs for software
› Cloud Services
– Integration, error diagnosis, everything cloud (transition)
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)
SCM 2011 Market Shares
Market Shares 2011: $7.7 Billion SCM Market
19.9%
SAP
Oracle
JDA Software
51.7%
16.9%
Ariba
Manhattan Associates
Others
5.0%
1.8%
2010-2011: 12.3% Growth
2012-2015: 9% CAGR
Project 2015 Market Size: $10.9B
4.7%
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
Notable Competitors
› Oracle
› SAP
› Manhattan Associates
› RedPrairie Software
Now to the JDA Software Business
Quick Financial Snapshot
Total Revenues
Growth
Software Sale Revenues
Growth
Net Income
Growth
EBITDA
Growth
Free Cash Flow (CFO-Capex)
Growth
2009
390,968
2010
593,742
2011
691,243
2.5%
51.9%
16.4%
95,662
112,633
156,980
-
17.7%
39.4%
27,575
2,141
82,688
7243.8%
-92.2%
3762.1%
82,732
79,605
183,166
-
-3.8%
130.1%
85,595
44,880
90,387
-
-47.6%
101.4%
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
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
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%
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
For these reasons, JDA acquired by RedPrairie
› November 1st, Definitive merger agreement
› $45 per share, $1.9B: a 16% premium to JDA’s all time
high and 33% premium to JDA’s October 26th close
› Tender offer commenced November 15th
– Expiration: December 14th, 11:59 pm ECT, unless extended or
terminated
– Minimum condition: 79% of shares outstanding
– “Top-Up” option to ensure majority vote (90%)
Discounted Cash Flow Valuation
Revenue Model
› Transition from on-premise to subscription
› Maintenance services and consulting services remain
strong
Revenue Model
($ in thousands)
Software Licenses
2009A
91,789
2010A
91,490
2011A
140,217
% Growth Sequential
% Growth Y/Y
% of Total Revenue
Subscriptions & Recurring Revenues
25,393
32,040
27,544
39,912
-35.9%
26.2%
-14.0%
44.9%
2012E
124,889
Q1
Q2
Q3
Q4
03/31/2013E
06/30/2013E
09/30/2013E
12/31/2013E
28,415
34,686
36,425
44,211
-28.8%
22.1%
5.0%
21.4%
2013E
2014E
2015E
2016E
143,737
155,412
166,289
177,364
2017E
190,641
53.3%
-28.8%
6.0%
-20.7%
0.7%
-10.9%
11.9%
8.3%
32.2%
10.8%
15.1%
8.1%
7.0%
6.7%
7.5%
20.3%
15.7%
19.0%
16.7%
21.6%
18.4%
16.7%
19.2%
19.7%
21.9%
19.5%
19.6%
19.4%
19.0%
18.8%
3,873
21,143
16,763
16,218
4,851
5,092
5,303
5,639
20,885
27,378
38,645
54,327
75,643
7.3%
5.0%
4.1%
6.3%
39.2%
4,032
3,754
3,909
4,523
-3.6%
-6.9%
4.1%
15.7%
445.9%
-20.7%
-19.3%
-2.5%
4.6%
8.2%
-3.3%
20.3%
35.6%
35.7%
24.7%
28.8%
31.1%
41.2%
40.6%
1.0%
3.6%
2.4%
2.5%
2.2%
2.4%
2.5%
2.4%
2.8%
2.8%
2.9%
2.8%
2.8%
3.5%
4.5%
5.8%
7.5%
179,256
245,777
265,785
66,713
66,815
68,784
69,241
271,553
69,212
70,111
70,541
73,313
283,177
293,962
305,525
318,645
331,605
-0.8%
0.2%
2.9%
0.7%
0.0%
1.3%
0.6%
3.9%
37.1%
8.1%
3.0%
1.0%
1.7%
3.0%
2.2%
3.7%
4.9%
2.6%
5.9%
4.3%
3.8%
3.9%
4.3%
4.1%
45.8%
41.4%
38.5%
41.1%
39.6%
41.8%
37.5%
39.9%
40.6%
38.9%
38.2%
36.2%
38.4%
37.1%
35.7%
34.2%
32.7%
274,918
358,410
422,765
96,138
102,609
100,237
113,676
412,660
102,478
109,889
112,269
123,163
447,799
-13.4%
6.7%
-2.3%
13.4%
-9.9%
7.2%
2.2%
9.7%
% Growth Y/Y
Total Product Revenues
Q4
12/31/2012E
-0.3%
% Growth Sequential
% of Total Revenue
Q3
09/30/2012A
15.4%
% Growth Y/Y
Maintenance Services
Q2
06/30/2012A
23.5%
% Growth Sequential
% of Total Revenue
Q1
03/31/2012A
% Growth Sequential
% Growth Y/Y
476,752
510,459
550,336
597,889
30.4%
18.0%
-8.8%
2.4%
-5.5%
2.4%
-2.4%
6.6%
7.1%
12.0%
8.3%
8.5%
6.5%
7.1%
7.8%
8.6%
% of Total Revenue
70.3%
60.4%
61.2%
59.3%
60.8%
60.9%
61.6%
60.7%
60.1%
60.9%
60.8%
60.9%
60.7%
60.2%
59.7%
59.1%
59.0%
Consulting Services
105,990
215,470
245,046
60,489
60,273
59,090
64,902
244,754
61,988
64,569
66,289
73,201
266,047
291,681
320,629
355,854
389,512
-10.9%
-0.4%
-2.0%
9.8%
-4.5%
4.2%
2.7%
10.4%
% Growth Sequential
% Growth Y/Y
103.3%
13.7%
5.4%
2.5%
-3.1%
-4.4%
-0.1%
2.5%
7.1%
12.2%
12.8%
8.7%
9.6%
9.9%
11.0%
9.5%
% of Total Revenue
27.1%
36.3%
35.5%
37.3%
35.7%
35.9%
35.2%
36.0%
36.4%
35.8%
35.9%
36.2%
36.1%
36.8%
37.5%
38.2%
38.4%
Reimbursed Expenses
10,060
19,862
23,432
22,539
5,930
5,922
5,946
5,952
23,750
24,056
24,312
24,981
25,684
0.3%
-0.1%
0.4%
0.1%
2.8%
% Growth Sequential
% Growth Y/Y
% of Total Revenue
Total Service Revenues
5,193
5,912
5.7%
-11.6%
13.8%
97.4%
18.0%
17.8%
-9.8%
-13.9%
-4.1%
-3.8%
6.7%
0.8%
14.5%
0.7%
5.4%
1.3%
1.1%
2.8%
3.3%
3.4%
3.4%
3.5%
3.2%
3.2%
3.3%
3.5%
3.3%
3.2%
2.9%
3.2%
3.0%
2.8%
2.7%
116,050
235,332
268,478
66,048
66,148
64,283
70,814
267,293
67,918
70,491
72,235
79,153
289,797
-10.8%
0.2%
-2.8%
10.2%
-4.1%
3.8%
2.5%
9.6%
102.8%
14.1%
6.4%
1.3%
-4.1%
-4.4%
-0.4%
2.8%
6.6%
12.4%
11.8%
8.4%
9.0%
9.2%
10.4%
9.0%
29.7%
39.6%
38.8%
40.7%
39.2%
39.1%
38.4%
39.3%
39.9%
39.1%
39.2%
39.1%
39.3%
39.8%
40.3%
40.9%
41.0%
679,953
170,396
180,380
184,504
202,316
737,596
-7.6%
5.9%
2.3%
9.7%
5.1%
6.9%
12.1%
9.7%
% Growth Y/Y
Total Revenue
5,875
2.6%
% Growth Sequential
% of Total Revenue
5,559
-9.9%
390,968
593,742
691,243
162,186
168,757
164,520
184,490
% Growth Sequential
2.5%
51.9%
16.4%
161.2%
4.1%
-2.5%
12.1%
% Growth Y/Y
2.5%
51.9%
16.4%
-3.2%
2.0%
-5.0%
-0.3%
-1.6%
8.5%
315,737
792,489
7.4%
344,941
855,400
7.9%
380,835
931,171
8.9%
2.5%
415,196
1,013,085
8.8%
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
Working Capital Model
($ in thousands)
Total Revenue
Current Assets
Cash and cash equivalents
% of Revenue
Restricted Cash - current portion
% of Revenue
Accounts Receivable
Days Sales Outstanding A/R
recievables turnover
% of Revenue
Deferred tax assets - current portion
% of Revenue
Prepaid expenses and other current assets
% of Revenue
Total Current Assets
% of Revenue
Long Term Assets
Net PP&E Beginning
Capital Expenditures
Depreciation and Amortization
Net PP&E Ending
Total Current Assets & Net PP&E
% of Revenue
Current Liabilities
Accounts Payable
Days Payable Outstanding
% of Revenue
Accrued Expenses and Other Liabilities
% of Revenue
Deferred Revenue - Current Portion
% of Revenue
Total Current Liabilities
% of Revenue
Q1
Q2
Q3
Q4
2010A
2011A
03/31/2012A
06/30/2012A
09/30/2012A
12/31/2012E
2012E
Q1
Q2
Q3
Q4
2013E
2014E
2015E
2016E
2017E
593,742
691,243
162,186
168,757
164,520
184,490
679,953
170,396
180,380
184,504
202,316
737,596
792,489
855,400
931,171
1,013,085
171,618
28.9%
34,126
5.7%
111,042
61
5.35
18.7%
50,816
8.6%
25,615
4.3%
393,217
66.2%
285,512
41.3%
8,733
1.3%
114,778
56
6.02
16.6%
32,063
4.6%
24,584
3.6%
465,670
67.4%
337,382
208.0%
3,315
2.0%
131,953
73
1.23
81.4%
33,412
20.6%
27,117
16.7%
533,179
328.7%
362,430
214.8%
3,314
2.0%
126,368
67
1.34
74.9%
36,540
21.7%
24,240
14.4%
552,892
327.6%
408,284
248.2%
3,004
1.8%
96,814
53
1.70
58.8%
36,660
22.3%
26,723
16.2%
571,485
347.4%
382,621
207.4%
3,251
1.8%
121,351
64
1.52
65.8%
35,640
19.3%
29,504
16.0%
572,367
310.2%
382,621
56.3%
3,251
0.5%
121,351
64
5.60
17.8%
35,640
5.2%
29,504
4.3%
572,367
84.2%
402,603
236.3%
3,561
2.1%
133,570
65
1.28
78.4%
32,604
19.1%
34,208
20.1%
606,546
356.0%
407,894
226.1%
3,641
2.0%
143,557
63
1.26
79.6%
29,045
16.1%
30,564
16.9%
614,701
340.8%
416,821
225.9%
3,687
2.0%
135,340
62
1.36
73.4%
26,405
14.3%
31,717
17.2%
613,970
332.8%
432,501
213.8%
4,019
2.0%
140,521
65
1.44
69.5%
22,064
10.9%
30,251
15.0%
629,356
311.1%
432,501
58.6%
4,019
0.5%
140,521
64
5.25
19.1%
22,064
3.0%
30,251
4.1%
629,356
85.3%
461,502
58.2%
20,614
2.6%
132,605
62
5.98
16.7%
15,809
2.0%
36,949
4.7%
667,479
84.2%
462,353
54.1%
21,807
2.5%
132,230
60
6.47
15.5%
10,647
1.2%
36,580
4.3%
663,617
77.6%
462,228
49.6%
21,589
2.3%
140,244
64
6.64
15.1%
5,707
0.6%
36,666
3.9%
666,434
71.6%
490,559
48.4%
21,521
2.1%
145,131
65
6.98
14.3%
0
0.0%
37,954
3.7%
695,165
68.6%
43,381
16,866
(12,800)
47,447
440,664
74.2%
47,447
19,444
(14,350)
52,541
518,211
75.0%
52,541
3,000
(3,383)
52,158
585,337
360.9%
52,158
4,836
(4,163)
52,831
605,723
358.9%
52,831
8,875
(9,051)
52,655
624,140
379.4%
52,655
5,681
(11,629)
46,707
619,074
335.6%
52,541
22,392
(28,226)
46,707
619,074
91.0%
46,707
7,514
(8,269)
45,952
652,498
382.9%
45,952
6,280
(9,977)
42,255
656,956
364.2%
42,255
7,050
(9,521)
39,784
653,754
354.3%
39,784
8,154
(8,554)
39,384
668,740
330.5%
46,707
28,998
(36,321)
39,384
668,740
90.7%
39,384
35,617
(32,614)
42,387
709,866
89.6%
42,387
33,202
(30,481)
45,108
708,725
82.9%
45,108
33,505
(30,629)
47,984
714,418
76.7%
47,984
28,645
(32,917)
43,712
738,877
72.9%
21,092
30
3.6%
88,028
14.8%
115,904
19.5%
225,024
37.9%
7,740
10
1.1%
73,111
10.6%
108,217
15.7%
189,068
27.4%
8,378
11
5.2%
76,226
47.0%
142,636
87.9%
227,240
140.1%
10,375
14
6.1%
71,381
42.3%
140,284
83.1%
222,040
131.6%
8,342
11
5.1%
80,760
49.1%
116,372
70.7%
205,474
124.9%
8,745
12
4.7%
82,545
44.7%
110,512
59.9%
201,802
109.4%
8,745
12
1.3%
82,545
12.1%
110,512
16.3%
201,802
29.7%
9,121
16
5.4%
72,465
42.5%
145,883
85.6%
227,469
133.5%
9,545
11
5.3%
74,608
41.4%
142,771
79.2%
226,924
125.8%
10,635
12
5.8%
77,965
42.3%
134,564
72.9%
223,164
121.0%
9,367
14
4.6%
88,545
43.8%
134,979
66.7%
232,891
115.1%
9,367
13
1.3%
88,545
12.0%
134,979
18.3%
232,891
31.6%
15,480
15
2.0%
96,777
12.2%
155,744
19.7%
268,001
33.8%
17,930
13
2.1%
95,646
11.2%
159,505
18.6%
273,081
31.9%
20,948
14
2.2%
95,606
10.3%
164,471
17.7%
281,025
30.2%
20,847
13
2.1%
103,255
10.2%
181,874
18.0%
305,976
30.2%
03/31/2013E 06/30/2013E 09/30/2013E 12/31/2013E
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
2012- SEC investigation), projected to decrease due to
SaaS transition, more efficiently handling costs
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
Beta
› 3 year optimal time frame: balance of long/short term
› Hamada: chosen to encompass industry behavior/risk
while acknowledging JDA’s capital structure
Beta
SD
Weighting
5 Year Daily
0.99
0.04
10%
5 Year Weekly
1.04
0.09
10%
3 Year Daily
1.23
0.07
20%
3 Year Weekly
1.12
0.15
20%
1 Year Daily
1.02
0.15
15%
3 Year Daily Hamada
1.05
-
25%
JDA Software Beta
1.09
0.08
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
Final DCF Valuation
Discounted Free Cash Flow Assumptions
Tax Rate
Risk Free Rate
Beta
Market Risk Premium
Considerations
32.75% Terminal Growth Rate
3.00%
1.75% Terminal Value
3,196,707
1.09 PV of Terminal Value
1,354,517
7.00% Sum of PV Free Cash Flows
874,548
% Equity
84.23% Firm Value
2,229,065
% Debt
15.77% Total Debt
273,484
Cost of Debt
8.00% Cash & Cash Equivalents (0% incl.)
CAPM
9.37% Market Capitalization
WACC
8.74% Fully Diluted Shares
362,430
1,955,581
43,095
Implied Price
$
45.38
Pre-Acquisition Price
$
33.92
Undervalued
33.78%
Comparable Analysis: Two Groups
Industry Comparables
› Comparability lies in product offering, industry risk, projected growth
› SAP (20%), Oracle (15%), Manhattan Associates (35%), Retalix (30%)
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%)
Metrics/Multiples
› For both groups of comparables, I chose the following
weights:
Metric
Weight
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
EV/Unlevered FCF
P/E
10%
10%
0%
10%
20%
50%
0%
› FCF proxies: cash generation representative of competitive offering
› Remaining 30% on metrics that represent ability to generate
revenues and sustain healthy margins
Final Relative Valuation
Final Relative Valuation
Multiple
EV/Revenue
Weight
Final Multiple
EV/Gross Profit
Weight
Final Multiple
EV/EBIT
Weight
Final Multiple
EV/EBITDA
Weight
Final Multiple
EV/(EBITDA-Capex)
Weight
Final Multiple
EV/Levered FCF
Weight
Final Multiple
P/E
Weight
Final Multiple
Industry
$42.47
65.0%
Fundamentals
$39.70
35.0%
$43.69
65.0%
$43.28
35.0%
$30.86
65.0%
$26.55
35.0%
$39.80
65.0%
$31.68
35.0%
$38.89
65.0%
$33.20
35.0%
$47.98
65.0%
$38.77
35.0%
$27.73
65.0%
$21.49
35.0%
Final Implied Price
Final Weight
$41.50
10.00%
$43.55
10.00%
$29.35
0.00%
$36.96
10.00%
$36.90
20.00%
$44.76
50.00%
$25.55
0.00%
Price Target
$41.96
Pre-Acquisition Price
Undervalued
33.92
23.70%
Final Valuation
Final Price Target
Implied Price
Weight
Discounted Free Cash Flow
$45.38
50%
Comparable Analysis
$41.96
50%
Current Price
$33.92
Final Price Target
$43.67
-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?
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
Acquired By:
SAP
Price:
$4.3B
CRM Software
Oracle
$1.5B
HCM Software
IBM
$1.3B
HCM Software
SAP
$3.4B
Relevant Metrics
› Acquisition Price Premium
› Merger Arbitrage Spread
Comparable Acquisitions Analysis
(All Numbers in T housands)
RightNow
Min
Max
Median
Weighted Average
JDA Software (11/1/12)
Weight
Ariba (5/21/12)
Technologies (10/24/11)
Kenexa (8/27/12)
SuccessFactors (12/3/11)
40%
20%
20%
20%
Pricing
Pre-Acquisition Price
$
26.25 $
37.64 $
34.18 $
33.98
$33.92
$37.64
$35.96
$32.39
$26.25
Acquisition Price
$
40.00 $
46.00 $
44.00 $
43.80
$45.00
$45.00
$43.00
$46.00
$40.00
Post Buyout Minimum
39.64
45.79
43.51
43.36
44.72
44.37
42.65
45.79
39.64
Post Buyout Maximum
39.97
45.98
44.11
43.88
44.85
45.22
43.00
45.98
39.97
39.81
45.89
43.81
43.62
44.79
44.80
42.83
45.89
39.81
0
273,484
13,756
40,502
273,484
0
175,000
27,511
0
(362,430)
(82,758)
(221,431)
(199,371)
(362,430)
(194,530)
(276,707)
(82,758)
(248,331)
(248,331)
Buyout Spread
Midpoint
EV Calculations
Total Debt
Less Cash & Cash Equivalents
Net Debt
Diluted Shares Outstanding
Market Cap Pre Buyout
Market Cap Post Buyout
EV Pre Buyout
EV Post Buyout
(248,331)
(55,247)
(148,119)
(158,869)
(88,946)
(194,530)
(101,707)
(55,247)
27,415.17
99,510.00
58,630.62
68,739.28
42,811
99,510
33,064
27,415
887,977
3,745,556
1,699,579
2,355,649
1,452,153
3,745,556
1,188,974
887,977
2,210,183
1,261,098
4,477,950
2,394,821
3,001,328
1,926,500
4,477,950
1,421,744
1,261,098
3,367,898
832,730
3,551,026
1,524,560
2,196,780
1,363,207
3,551,026
1,087,267
832,730
1,961,852
1,205,851
4,283,420
2,219,802
2,842,459
1,837,554
4,283,420
1,320,037
1,205,851
3,119,567
84,197
Comparable Metrics
Acquisition Price Premium
Risk (Merger Arbitrage Spread)
19.6%
52.4%
30.8%
30.6%
32.7%
19.6%
19.6%
42.0%
52.4%
0.251%
0.490%
0.433%
0.413%
0.480%
0.458%
0.409%
0.251%
0.490%
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 2002median 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
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)
Questions
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