JDA acquires i2: Oh how the world has changed

Catching up on other news, I see that i2, one of the dot bomb mavens has succumbed to acquisition pressure at a 12.5% premium to its share price. JDA is the lucky (or is it plucky?) acquirer of this once fascinating supply chain/demand planning provider, scooping up i2 for $346 million.

I well recall the heady days when i2 boasted of its then record breaking $9.3 billion acquisition of Aspect Development at a time when i2 was attempting to become the dominant demand planning and B2B internet business trading platform provider. Its 2000 customer conference was an exercise in corporate arrogance with the then president Greg Brady lambasting journalists like myself who could not see the sustainability of i2's business strategy. That was the same year i2 offered a bounty of $500 to anyone who went and got the company's logo tattooed on themselves. Some weeks later, i2 re-designed the logo.

As it turned out, people like myself were right to question the company but not necessarily for the right reasons. The company was deeply mired in fraudulent activities that ultimately saw Brady forking over $8.3 million in various SEC penalties. This pales into insignificance when compared to the alleged $1 billion in dodgy sales including $125 million that should never have been booked. Since those crazy days, much has changed and while not back to its former glory, i2 was doing 'ok.'

The analyst presentation (link to PDF download) accompanying the JDA announcement makes for equally entertaining reading. The deal is being financed through bank debt of $425 million rather than a fresh share issue. This protects existing JDA shareholders from dilution. More telling, it implies that acquisitive companies are prefering to take advantage of relatively low interest rates rather than go through the share acquisition mill, with its attendant fees and other costs. To that point, the second largest line item after general and administration headcount costs of $5.8 million in the identified short term savings is $5.2 million in 'public company costs' aka Sarbanes-Oxley compliance.

Less palatable is the combined company expects to ramp up  EBITDA to 23.9%, in part based upon $20 million near terms savings but also combined maintenance revenues of 46.9% total revenue. I'd prefer to see JDA invest more heavily in innovation for the vertical markets in which it has successfully focused. Yet it seems that generally, we have entered a period where the financial markets are more interested in recurring revenues than what the vendor can do for customers. Maintenance revenue is now king. That cannot be a good thing in the long term. While good for greedy shareholders it is a strategy for product stagnation. In consolidating markets vendors may think they become immune to competition. That, as any student of software history knows, is a dumb belief.