E2open’s $425 million purchase of Amber Road is the latest and largest in a flurry of deals to boost global trade management (GTM) capabilities amid uncertainty stemming from rising global trade tensions.
The deal, announced Monday, is a culmination of E2open’s 18-month pursuit of publicly owned Amber Road, which twice rebuffed unsolicited offers of $300 million and $350 million in the first quarter of 2018. The purchase price is 21 percent higher than the last offer rejected by Amber Road’s board, likely influenced by escalating trade tensions between the world’s two largest economies.
The United States and China assessing large swaths of tariffs against one another is compelling shippers to more closely examine duty avoidance and free trade agreement strategies, both capabilities that Amber Road’s software enables.
Austin-based E2open, long known as a supply chain planning platform for manufacturers, has made three acquisitions since October designed to give shippers using its platform the ability to execute and track freight shipments.
The deal sends ripples through the logistics software space, especially when viewed in tandem with E2open’s other deals at the tail end of 2018 for domestic transportation management software (TMS) provider Cloud Logistics and the ocean freight e-commerce platform INTTRA.
More logistics software consolidation
From a shipper perspective, the deal represents further aggregation of logistics functionality within larger single platforms. While E2open’s strength before the second half of 2018 lay primarily in the supply chain processes that precede freight logistics, Amber Road augments those “pre-freight” capabilities through its robust trade compliance and sourcing modules, and also extends E2open’s reach into ocean freight execution and visibility.
E2open has now assembled four pieces of the supply chain management puzzle: domestic transportation management, international transportation management, freight visibility, and trade compliance. If the company can successfully integrate the Cloud TMS with the Amber Road global TMS, it also might help the company bridge a software divide that few providers can tackle with proficiency, the management of international and domestic freight modes within a single workflow.
“We knew we’d need to get into the logistics execution space,” E2open CEO Michael Farlekas said in a briefing with JOC.com in October after the INTTRA acquisition. “Ocean shipping was one area where Cloud needs to be augmented. So we can quickly add the ocean booking piece into the Cloud Logistics piece and increase the aperture of what users can book. We look at combinations that are additive. Our clients would love to ship more ocean.”
The words are more prescient in the wake of the Amber Road deal. While INTTRA gave E2open access to the ocean freight industry, including a large book of freight forwarding customers and direct integrations with major ocean carriers, it didn’t allow users to execute those ocean freight shipments.
The premium paid for Amber Road over the early 2018 asking price reflects how much the value of GTM software has appreciated in the wake of the current US trade environment. It also follows a string of other deals for prominent GTM providers in the last eight months, including Thomson Reuters’ acquisition of Integration Point in October, Descartes’ $248 million acquisition of Visual Compliance in February, and the sale of customs broker Livingston International (which offers GTM software) to a private equity fund, also in February.
Amber Road had revenue of $85.2 million in 2018, up 7.7 percent from 2017, while it had an operating margin of 6.3 percent on $5.4 million of earnings before interest, taxes, depreciation, and amortization. The sale price, which E2open will pay in cash, represents a five-time multiple of annual revenue.
Among other things, Amber Road’s on-demand, subscription-based software allows shippers to manage duties, access restricted party screening lists, use free trade zones more effectively, and coordinate the physical and digital flow of goods.
The software has three main functional areas: sourcing, trade compliance, and ocean freight execution and visibility. It is intended to be scalable, so smaller firms needing basic tools or single modules can pay for those, while other shippers might use the entire suite of logistics and trade compliance tools.
Amber Road competes in a top heavy market with Integration Point, Aptean, Livingston, Descartes, BluJay Solutions, and Questa Web, among others. Enterprise resource planning (ERP) vendors SAP and Oracle also offer GTM software and benefit from a massive install base. In other words, companies that are using those tools for ERP often then decide to use the integrated trade compliance software provided by those companies.
Those ERP-associated tools were often deployed as part of on-premise implementations of Oracle and SAP. The cadre of GTM solutions that rose to prominence post-2000, including Amber Road, are predominantly software-as-a-service (SaaS)-based and deployed in the cloud, enabling companies to implement them more quickly and less expensively.
In general, GTM has been an overlooked segment of the broader supply chain management market, with importers and exporters often purchasing solutions from a reactive position rather than a proactive one. In many cases, investments in trade compliance come as a result of regulatory penalties or changes in free trade agreements or duty impositions that impact sourcing patterns.
Some companies in the space focus on pure trade compliance management tools, while others offer specialized modules around free trade zone usage. Amber Road is an outlier in that it provides both logistics and compliance tools.