Panasonic has a chequered history in acquisitions but the Japanese conglomerate insists its $7.1bn purchase of Blue Yonder is worth the steep price as it will help address its biggest weakness in software capability.
The sense of crisis driving Panasonic’s deal is pervasive across Japanese companies, which once thrived in the era of consumer electronics hardware. But they have struggled as global demand shifted to software and with the creation of huge technology companies such as Apple and Amazon.
In March, Hitachi agreed to buy GlobalLogic, a Silicon Valley software engineering company, for $9.5bn. Yasuyuki Higuchi, a Panasonic executive who heads its connected solutions business, said in an interview:
“As everything becomes digital, it’s becoming increasingly difficult to differentiate through hardware. Naturally, we have a real sense of crisis and we need to have software.”
The former chief executive of Microsoft’s Japanese business oversaw talks to acquire Blue Yonder and has sat on the board of the US supply chain software company since Panasonic first acquired a 20 per cent stake last year. After announcing the deal on April 23, shares in the battery supplier for Tesla fell as much as 14 per cent. Investors baulked at 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 struggled with its two big acquisitions: the 1990 purchase of MCA, then the owner of Universal Pictures, for $6.6bn and the ¥800bn takeovers of smaller rival Sanyo Electric and another subsidiary in 2011.
Analysts still wonder what the two companies can do better with Panasonic’s full ownership that the Japanese company could not do with a 20 per cent stake. Blue Yonder’s enterprise value has jumped from $5.5bn a year ago to $8.5bn even though its revenue has remained mostly flat. Operating profit margin has fallen to 1.7 per cent from 10 per cent in the past three years. Panasonic executives want to expand Blue Yonder’s client base in Japan and combine its hardware, such as security cameras and sensors, with the US group’s software to enhance supply chain management.