Panasonic has a checkered history of acquisitions, but the Japanese group insists its $7.1 billion purchase of Blue Yonder is worth the high price as it will help address its biggest weakness in software capability.
The sense of crisis driving the Panasonic deal is spreading across Japanese companies, which once thrived in the age of consumer electronics devices. But they struggled as global demand shifted to software and the creation of huge tech companies like Apple and Amazon.
In March, Hitachi Agree to buy GlobalLogic, a software engineering company in Silicon Valley, for $9.5 billion.
“As everything is becoming digital, it is becoming increasingly difficult to differentiate through devices,” Yasuyuki Higuchi, a Panasonic CEO who heads up the Connected Solutions business, said in an interview. “Of course we have a real sense of the crisis and we need programs.”
The former CEO of Microsoft’s Japanese business oversaw conversations with him Get Blue Yonder He has been on the board of directors of the US supply chain software company since Panasonic first acquired a 20 percent stake last year.
After the deal was announced on April 23, shares in battery supplier Tesla fell 14 percent. Investors held back the high price and questioned whether the Japanese group’s management would be able to manage such a large acquisition in a different industry.
Panasonic has struggled with two big acquisitions: buying MCA in 1990, then owner Universal Pictures, for $6.6 billion, and acquiring smaller rival Sanyo Electric and another subsidiary for 800 billion yen in 2011.
Analysts have also questioned the benefits of more recent deals, including its $1.6 billion acquisition of Haussmann, a US refrigerated display case maker, in 2015.
“We believe that Panasonic has a poor track record, especially when it comes to big deals,” said Atul Goyal, analyst at Jefferies, in a recent report.
Higuchi argues that the Blue Yonder deal is a departure from the past because it is an investment in a software company with stable and predictable revenue. The US supply chain specialist, which serves 3,000 companies including Coca-Cola and Walmart, had $1 billion in sales last year, 67 percent of which were recurring revenue.
“With such a high recurring ratio, their revenue is mostly determined like utilities,” Higuchi said. “We’ve also been able to hold on to management so the success rate is very high.”
However, analysts question what the two companies could do better with full ownership of Panasonic that the Japanese company cannot do with a 20 percent stake.
Blue Yonder’s value has jumped from $5.5 billion a year ago to $8.5 billion even though its revenue has remained mostly flat. Operating profit margin has fallen to 1.7 percent from 10 percent in the past three years.
Panasonic executives want to expand Blue Yonder’s customer base in Japan and combine its hardware, such as cameras and security sensors, with the US group’s software to enhance supply chain management.
Regardless of price, Citigroup analyst Kota Aizawa said the latest acquisition has addressed some of the serious challenges Panasonic faces.
“They needed an iterative business model, a large software asset and a gateway and distribution channel to do business outside of Japan, so these were all things that were needed to survive the competition,” said Aizawa.
“So it fills in some loopholes, but this deal is clearly not the complete solution to how Panasonic is turning to software and subscription services.”