OSAKA -- Panasonic is set to acquire U.S. software company Blue Yonder, which mainly focuses on supply chain management, Nikkei has learned. The deal is expected to cost about 700 billion yen ($6.5 billion).
The Japanese company wants to expand hardware that combines software, sensors and other devices to help companies improve operational efficiencies.
The move marks a major change in the business model of the manufacturing industry, which until now has been based on selling goods.
Multiple sources familiar with the matter confirmed that negotiations are in the final stage, but added that there is still a chance the two sides will not reach an agreement.
Blue Yonder uses artificial intelligence to predict product demand and delivery dates while reviewing supply chains to improve profitability.
The company was founded in 1985 and has about 3,300 clients worldwide, including Unilever in the U.K. and Walmart in the U.S. Sales in fiscal 2019 were up 8% from the previous year, reaching about $1 billion.
In 2020, Panasonic acquired a 20% stake in Blue Yonder for 86 billion yen. The rest of the shares are owned by U.S. funds Blackstone and New Mountain Capital. Shareholders are in final talks about the purchase.
The deal would be Panasonic's largest M&A since it spent 800 billion yen to make Sanyo Electric and Panasonic Electric Works wholly owned subsidiaries in 2011.
Panasonic hopes to leverage its hardware operations by combining them with software. The company has a large share of the market for security cameras used in stores and portable bar code readers used in logistics facilities.
Selling them as stand-alone hardware devices without software would mean lowering prices to stay competitive. In addition, adding software support for supply chains will increase the value of its hardware products.
The global market for supply chain software was estimated at around $15 billion in 2019, and it is expected to increase by about 10% annually. Demand for this kind of software is growing as hardware-centric companies digitize operations.
Blue Yonder introduced demand forecasting and automatic ordering software for fresh and processed foods at Morrisons, a U.K. supermarket chain with about 500 stores. The change has reduced shortages by 30% and inventory by three days.
Panasonic wants to offer other companies similar systems that combine its hardware and technology with software.
It also wants to adopt a recurring revenue business model. Among major electronics companies, Sony and Hitachi are leading in developing this model: Sony with games and Hitachi through its proprietary IoT platform, Lumada. Panasonic is focusing on home appliances in this area. Its purchase of Blue Yonder will help it develop expertise in fields like demand analysis.
The Blue Yonder acquisition is likely to come from Panasonic's own funds. Its free cash flow for fiscal 2020 ending March 31 is expected to top 300 billion yen. Capital investment has increased about 40% from the previous fiscal year. The company also has about 1.4 trillion yen in cash and deposits.
However, since interest-bearing debt is about the same, loans or other financing may also be considered for the purchase.
Manufacturers worldwide are trying to become less reliant on hardware. Germany's Siemens has increased profitability by combining its traditional strength of factory management equipment with services gained by acquiring other companies. U.S.-based Tesla is also winning customer support by updating vehicle software via the internet.
But integrating acquired companies remains an issue for Panasonic. In 1991, it bought MCA for 780 billion yen but fumbled governance and was forced to offload its purchase to now-defunct Canadian beverage maker Seagram after only five years.