$7B deal shows how industrials are going to re-bundle… but this time with software

$7B deal shows how industrials are going to re-bundle… but this time with software

This deal wasn’t announced in late April so it isn’t exactly breaking news. But I have had more time to work through all of the ongoing dynamics in the supply chain for the energy and industrial transition.

There seem to be 3 key trends converging here:

  1. Rapid consumer / corporate interest in transparent supply chains and the need to definitively source materials in a responsible way
  2. Change in types of raw materials going into new products: minerals, other sustainable alternatives
  3. Movement from just-in-time to resilient supply chain planning, which includes onshoring manufacturing

These are all foundational changes. At the same time the OEMs are realizing that just being in the manufacturing arena is a race to the bottom on margins.

I haven’t covered a number of the industrial M&A events over the past year. But a great company that was riding all of the above trends was Blue Yonder, and earlier this year Blue Yonder was acquired for $7 billion by Panasonic. Why is this an example of the future of supply chain? As described by their press release, Blue Yonder uses machine learning to help companies manage supply chains that connect factories to warehouses and retailers. Panasonic, one of the largest battery makers in the world (for Tesla) wanted to move from contract hardware into software and higher value add services. Blue Yonder had $1 billion of revenue with $344M of ARR at year-end. That means that Panasonic paid ~7x revenue or 20x recurring software revenue for the business. Panasonic is paying this premium because Blue Yonder will begin to move Panasonic’s industrial presence more into the data and software verticals. Smart move. Manufacturers realize that they need data and controls from process sourcing all the way to endpoint delivery. Being a manufacturing middleman is a dying position of the past. This may cause us to see more industrials re-bundle – but this time with software – after decades of disassembling behemoth and disparate manufacturing units.

I suspect we are going to see more industrials or OEMs seek inorganic growth by purchasing firms with access to supply chain analytics or firms that enable access to one of the 3 key trends identified above.

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