Optiant: Good Software Company Acquired at a Bargain Price
March 25, 2010
Two bloggers that I regularly read (Lora Cecere and Bob Ferrari) recently posted blogs about Logility’s acquisition of a software company called Optiant. Logility offers collaborative, best-of-breed supply chain solutions for small, medium, large and Fortune 1000 companies. Interestingly, for five years, Cecere met with people from Optiant at a “breakfast club” at the Wyndham Hotel on Broad Street in Boston [“Good-bye to the Breakfast Club,” 24 March 2010] and, for a while, Ferrari was Optiant’s Vice President of Marketing and Business Strategy [“Logility Acquires Optiant- A Savvy Move at a Bargain Price,” 22 March 2010]. Hence, both of them are in a position to write knowledgeably about the acquisition. Optiant, Inc., was founded as SupplyChange, Inc., in 2000 and changed its name to Optiant, Inc., in February 2001. Optiant’s particular business niche is inventory optimization, supply chain network design, and supply chain business intelligence solutions.” Logility acquired the company “for approximately $3.3 million in cash, subject to certain post-closing adjustments” [“Logility Acquires Optiant, Inc.,” Optiant press release, 22 March 2010]. By any standard, that’s a bargain basement price for a company that has produced, by all accounts, world-class software and boasts some well-known clients. According to the press release, “the acquisition is expected to be accretive to Logility’s earnings and cash flow within the next 12 months.” This is what Ferrari writes about the acquisition:
“First, this acquisition is another sign that supply chain network design and inventory optimization technology are becoming important capabilities to have within a modern supply chain planning and analytical business process. … Logility has found a bargain in this acquisition. Optiant’s sophisticated multi-echelon inventory optimization technology has proven its value in many customer settings, and it would be hard to replicate the technology, and more importantly the reference customer base, at this purchase price. The technology has also been testified by many of Optiant’s existing customers as user-friendly, which is a very important differentiator for this type of technology. Logility also inherits a stellar listing of installed based customers, including Black and Decker (now part of The Stanley Company), Hershey Foods, Hewlett Packard, Kraft, Nestle, Procter and Gamble, and others. Many of these customers found positive benefits in their implementation, and were reluctant to let their industry peers know how much money they had really saved. These customers could further present some rather interesting cross-selling opportunities for Logility.”
Cecere agrees with Ferrari’s assessment. She writes:
“I have visited the Optiant implementations at HP and Procter Gamble. They are world class. The software worked. Optiant had a good product. The results were compelling: 30-50% reduction in working capital and a 5-10% improvement in service levels.”
She then laments: “Sadly, success in software start-ups has little to do with the product.” So why did Optiant sell so cheaply. Ferrari provides his thoughts:
“Optiant’s history is one reflecting problems with management turnover, consistency in strategic direction and sales execution. The company’s original primary investor moved on after sinking considerable sums of money in the company, and of late, Supply Chain Ventures had been a primary banker of the company. Logility now has the opportunity to provide more consistency in direction and go-to-market strategy.”
Cecere agrees with that assessment and indicates that there are three lessons to be learned from Optiant’s inability to gain greater in-roads into the supply chain market. As noted above, the first lesson was that lack of success was “not about a good product.” As Ferrari and Cecere both agree, Optiant’s software is great. About the other two lessons learned, Cecere writes:
“A Missionary Sell needs a Missionary. In many ways, Optiant was a solution looking for a buyer. The solution was ahead of its time. When the company started, inventory configuration — analyzing the right form and function of inventory and optimizing push pull boundaries — was new. It was a missionary sell. Unfortunately, the company was never able to find the right voice to convince buyers to try a new approach. For success, the company needed to find the equivalent of Ken Sharma of i2 Technologies, David Semchi-Levi previously of LogicTools or Shridar Tayur at SmartOps. They needed someone with enough passion and conviction to help a buyer try a new approach. They never found it. To make this successful, Logility will need to find one.
Market needs to be Big Enough. Inventory optimization is too small to be a stand-alone market. The primary driver of the inventory optimization market is the lack of functionality in the ERP supply chain planning suites. Simply put: companies struggling with new ERP implementations and million dollar implementations were unwilling to ask for new funds to improve what they had asked their boards to implement. Optiant found itself in a small, but competitive market. They were never able to achieve the SAP partnership status of their competitors and there were just too few of these companies to buy. This will not be an issue for Logility. They have a loyal and mature installed base. The company can sell it successfully into its base.”
Both Ferrari and Cecere believe that Logility was smart in acquiring Optiant. Ferrari concludes:
“Logility has indicated that it will brand Optiant’s applications as Voyager Inventory Optimization within its existing Logility Voyager Solutions suite. Thus, the prior Optiant technology will be offered on a standalone basis, which is a smart move for Logility. It will provide Logility additional time to build integration among Inventory Optimization and other components of the Voyager suite. Another important implication brought about by this acquisition is that inventory optimization technology can not only be available for large companies, but also mid-market manufacturers and retailers, as well. The mid-market has been a key goal for Logility for many years. Bottom-line, Logility has made what appears to be a smart move in its acquisition of supply chain network design and inventory optimization technology. Last year, in its research report on the inventory optimization technology landscape, IDC Manufacturing Insights predicted that these technologies will morph into a broader category of supply chain analytic and what-if capabilities. Logility must now build out the integrated components of this capability. I, and I’m sure other ex-Optiant staffers are somewhat saddened to note the end of the Optiant name in the market. But just like any company with a troubled legacy, there is a need for others to navigate a new journey.”
Cecere concludes her post with questions she believes remain unanswered:
“Will the two cultures find the right blend? Will Logility be able to retain and appreciate the deep optimization and innovation background of the Optiant’s founders? And will the Optiant founders be able to appreciate the sales and financial leadership that they were so sorely lacking? It will no longer be about improving SAP and Oracle implementations; instead, it will be about taking Logility to the next level. Will the Optiant founders have the stomach to do this?”
At the very least, Optiant’s story should be a warning to would-be entrepreneurs who believe that a great idea is good enough to ensure success. Business is business. A sound business plan, the right people, and a little bit of luck are all required to turn great ideas into great businesses.