Company: Logistyx Technologies
Verticals: distribution, manufacturing, retail, third party logistics
Vendors: Cisco, Lifesize, Microsoft, Oracle, Postea, Zebra Technologies
Distributors: Ingram Micro, ScanSource
Any ISV who’s ever been through a merger or acquisition knows how difficult it can be trying to join two company cultures and disparate backend systems, not to mention aligning business goals and determining who stays and who doesn’t. Transportation management execution (TME) ISV Logistyx Technologies’ executive team and capital investment firms created the company by merging three former ISVs — Advanced Distribution Solutions, Inc. (ADSI), Agile Network (Agile) and Pantechnik International.
I recently caught up with Ken Fleming, chief product and marketing officer to get some background on the thinking, strategies and challenges that went into this big move.[speech_bubble type=”std” subtype=”a” icon=”jay.jpg” name=”DevPro Journal” ]What was the driver behind this merger?[/speech_bubble] [speech_bubble type=”std” subtype=”b” icon=”fleming.jpg” name=”Fleming” ]
There’s three goals an ISV looks at when considering a merger or acquisition: First and foremost, you want to grow your market share, you may also want to acquire new technology, and the third goal is to expand your resources. In our space, we all focused specifically on TME, which is really parcel shipping, warehouse execution systems. We looked at this space and asked ourselves, ‘What opportunities are available?’ What we were astonished to find was that while there were a few instances when a large software company absorbed a small ISV to gain a new technology, no company had tried to do a big merger and dominate the space.
Initially, we were skeptical as to why and considered the possibility that it could be a bad sign as well. In our case, it turned out to be a good sign. There were lots of companies with under $20 million in revenue, and they each tended to focus on niche markets. For example, you would find one ISV, like ADSI, that was good at reaching SMBs in the United States. Pantechnik was well established with international carriers and running systems outside the North American market. And Agile focused on enterprise shipping systems. When this opportunity to merge these three companies was presented to me, my initial thought was this could be the Match.com of technology.
I’ve been involved in M&Is my entire career, and there’s always a lot of overlap that requires deep cuts into one or both companies. In this particular case, the overlap between all three companies was minor. In fact, ADSI and Agile rarely competed for the same deals prior to the merger, and the few times they did, it was a sign that one of them was likely in the wrong place. Plus, they had both partnered with Pantechnik to assist with a customer that had an international presence.[/speech_bubble] [speech_bubble type=”std” subtype=”a” icon=”jay.jpg” name=”DevPro Journal” ]What was a big challenge you faced early on in the process?[/speech_bubble] [speech_bubble type=”std” subtype=”b” icon=”fleming.jpg” name=”Fleming” ]Although we were dealing with three companies, Agile was actually five companies – each specializing in one region of the country — under one holding entity, which made the merger feel like a coming together of seven independent entities, not just three. There were seven legal entities and seven financial systems that had to be rolled up. This complexity alone is enough to keep most companies from considering such a move. One thought that kept us moving forward was the market advantage we could create by bringing together these diverse areas of expertise.[/speech_bubble] [speech_bubble type=”std” subtype=”a” icon=”jay.jpg” name=”DevPro Journal” ] How did you convince each business owner this was in their best interest?[/speech_bubble] [speech_bubble type=”std” subtype=”b” icon=”fleming.jpg” name=”Fleming” ]They were each aware of their individual capacity. They would have to change to grow and remain competitive, plus they each saw the synergy among the companies and the possibilities. Even though each business owner no longer owns 100% of the company like they did previously, the smaller percentage of a much larger business exceeds their previous earning potential. When you merge three companies, you can create a company with the infrastructure and management to grow from tens of millions to hundreds of millions. Each of the owners saw this potential and stayed with the new company. Even JDA and Red Prairie rolled up to with hopes of becoming a $1 billion company.[/speech_bubble] [speech_bubble type=”std” subtype=”a” icon=”jay.jpg” name=”DevPro Journal” ]What are some of the big growth drivers in your market right now?[/speech_bubble] [speech_bubble type=”std” subtype=”b” icon=”fleming.jpg” name=”Fleming” ]
The ecommerce shift is having a big impact on parcel shipping, and the entire market is reacting. Currently, 10% of all merchandise sales are coming from online and that channel is continuing to grow exponentially. Merchants are demanding more choices than ever. Not only do they have to have merchandise on hand for their brick and mortar stores; they need it for their direct online channel as well as for third-party marketplaces like Amazon. Amazon requires that the merchant either ships merchandise to an Amazon warehouse, or the merchant can work with an Amazon Prime certified shipping company like Logistyx Technologies that can print tickets and shipping labels that meet Amazon requirements. This allows the merchant to keep its merchandise in its warehouse and ship directly to the customer.
Highly automated warehouses used by some high-end retailers are another area where we’re now more competitive. Our software works in conjunction with their automation equipment and products can be picked, packed and shipped with no human touching it. We had some of these capabilities before, but now we can serve the entire U.S. along with international destinations, and we have a more complete offering.[/speech_bubble] [speech_bubble type=”std” subtype=”a” icon=”jay.jpg” name=”DevPro Journal” ]Is there any advice you’d like to share with other ISVs contemplating similar moves in their industries?[/speech_bubble] [speech_bubble type=”std” subtype=”b” icon=”fleming.jpg” name=”Fleming” ]There’s no lack of interest among companies wanting to participate in M&Is. It’s important to shop for the right partners. I’ve been through it too many times in the past where it was a wrong combination and it put a big damper on our success. Working with the right capital investment firm is key, too. Kidd & Company, LLC had a lot of experience in this area, and they were with each business owner each step of the way. It’s much different dealing with an investor than dealing with a bank. We have a much closer relationship with the investors, and they provide a lot more value than just finance.[/speech_bubble]