Panasonic Connect, a Tokyo, Japan-based B2B solutions subsidiary of electronics giant Panasonic Holdings [TYO:6752], is exploring bolt-on buys globally to enhance its supply chain management (SCM) business, which has Blue Yonder as its core, Chief Strategy Officer (CSO) and Senior Executive Vice President Hideaki Harada told Mergermarket.

Its internal M&A team is working closely with Blue Yonder colleagues to accelerate the pace of investments, said Harada, who played the leading role in Panasonic’s USD 7.9bn acquisition of Blue Yonder, an Arizona-based SCM software developer, last year.

The company is fielding suggestions from bankers regarding potential targets and is receptive to further approaches, he said.  

Ideal targets are software companies involved in technologies related to e-commerce and last mile delivery, and can complement Blue Yonder’s AI-driven SCM software platform, according to him.

Panasonic Connect is looking to become a category killer in this space by combining its hardware technology with Blue Yonder’s software solutions. It is interested in targets which have “missing parts” to be added to Blue Yonder’s SCM software package, according to Harada.

Blue Yonder has expanded its business via acquisitions, and this strategy will continue, Harada noted. 

Panasonic Connect is not looking for a huge acquisition, Harada said without elaborating on specific figures because it is now focused on post-merger integration (PMI) with Blue Yonder, he added. 

SCM subsidiary listing plan on track

Meanwhile, Harada noted that there is no change to the listing plan for its SCM business, which Panasonic Holdings announced earlier this year. The company has not determined which market it would list on and has not retained a lead underwriter at this stage, Harada noted without elaborating.

Panasonic Holdings announced in May 2022 that it is preparing to list Panasonic Connect’s SCM business to accelerate growth globally by utilizing the capital markets.

The company will hold a majority of the voting rights after the listing, according to the press release.

When asked about the potential risk of being regarded as a parent-child listing case, Harada noted that it will dispel such concerns when it explains the equity story of the new listing entity, Harada said.  

“We are going to assure fair trading between parent and child company and pursue customer satisfaction on the business to be chosen by our investors in the stock market”, Harada noted.   

Panasonic acquired a 20% stake in Blue Yonder for USD 800m from private equity firm New Mountain Capital in May 2020, according to Mergermarket data. The company bought the remaining 80% stake from Blackstone Group [NYSE:BX], and New Mountain Capital in April 2021 for USD 7.1bn, according to Mergermarket data.

Blue Yonder acquired the Massachusetts-based Yantriks, an IT solution company for e-commerce and fulfillment microservices in 2020 for an undisclosed sum.

Behind the scenes of Blue Yonder deal

Panasonic was initially seeking to buy the 100% stake in Blue Yonder at once, but had to change course as it was difficult to reach a consensus internally to make a huge investment in a company which focuses on an area that Panasonic is not familiar with, Harada said.

“As a result, investing into the first 20% was meaningful for us. We were able to send our CEO Yasuyuki Higuchi to Blue Yonder as a board member, and we could have more active communication and increase our confidence levels in each other”, he noted.

There were many potential buyers which showed interest in Blue Yonder besides Panasonic, according to Harada.

Panasonic was also a preferred bidder for Blue Yonder’s management team at the time, as they highly valued Panasonic’s hardware technology, such as sensing and image recognition, to achieve further growth, he said. 

All the negotiations for buying the rest of the 80% stake in Blue Yonder were conducted from Panasonic Connect’s headquarters in Tokyo fully remotely, due to the travel restrictions amid the COVID-19 outbreak, according to Harada.

“(By the time of the final negotiation) I had established a solid trusting relationships with their PE owners. Such relationships helped me on the negotiation and to get the deal done”, he added.

Even after the deal was completed, Harada continues to keep in touch with them, he said.

“Once the travel ban lifted, I immediately flew to New York to meet them to say hi after the transaction and learned the behind the scenes point of view from the seller side, like why they chose Panasonic as a buyer in the end, and what was the turning point of the negotiation—there was quite a lot for us to learn”, he noted.   

Besides the Blue Yonder deal, Harada is having discussions regularly with other private equity firms, including Polaris Capital , which acquired an 80% stake in i-Pro, formerly known as Panasonic’s security camera business. Polaris’s CEO Kimura and Harada are non-executive directors at i-Pro. 

“Talking with private equity investors helped me understand what’s going on in the market and where they are trying to allocate money”, he said.

Hardware as core businesses

Panasonic Connect intends to keep the existing hardware businesses, despite frequent approaches from potential buyers, including private equity firms, Harada said.

“There are four core businesses remained after we did the selection and concentration of business portfolio. These are expected to generate stable profits for the next 5-10 years”, he noted.

The four hardware businesses consist of (1) Process Automation, which includes factory automation and welding machines, (2) Avionics, which includes in-flight entertainment systems, (3) Mobile Solutions, which includes laptop computers, and (4) Media Entertainment, which includes projectors, professional camera recorders and sound systems, according to the company’s website.

 It may consider options on a case-by-case basis if it sees signs that a business is becoming weak at some point in the future, but the current phase is a time to allocate investments and strengthen those businesses, he noted.

Although its California-based subsidiary Panasonic Avionics is facing a difficult time due to the impact of the COVID-19 outbreak on air travel, it intends to keep it and has never mulled a divestment seriously, Harada said.

“Avionics owns the largest market share in in-flight entertainment system segment globally and has about 60 locations including overseas airports. I don’t know any other companies like that”, he said. 

There were concerns that seat screens might be replaced by streaming services with bring-your-devices (BYD) style several years ago, according to Harada. However, major airlines have chosen to keep embedding monitors on seats. Airline companies like Delta Air Lines [NYSE:DAL], for instance, are very much focusing on flight entertainment services. Having monitors is an important factor for airlines to differentiate themselves from other airlines which do not carry monitors”, he added.

Panasonic Connect was formed in April 2022, as a wholly owned subsidiary of Panasonic Holdings, when Panasonic moved to a holding company structure.

It has 28,500 employees globally and posted revenue of JPY 924.9bn for the year ended March 2022 (FY22), according to the company’s website.