ARC Forecasts Warehouse Management System Market to Reach $1.3 Billion: Consolidation Roils the Market.

DEDHAM, Mass. -- The worldwide market for Warehouse Management Systems (WMS) has had its best year in several years. After several slow years, the market grew by over 5 percent in 2004. The market was $1,067 million in 2004 and is forecasted to be over $1,339 million in 2009, according to a new ARC Advisory Group study, "Warehouse Management Systems Worldwide Outlook Through 2009" (www.arcweb.com/res/wms).

"Based on the number of acquisitions and mergers in this market (there were over 20 acquisitions or mergers of companies with WMS solutions), the market's growth has been surprisingly strong," according to Steve Banker, Service Director for Supply Chain Management at the ARC Advisory Group, and principal author of the study. "While some acquired companies with WMS solutions can expect to continue to grow their revenues, historically mergers and acquisitions have more often served as a drag on growth."

Acquisitions and Mergers

ARC classifies WMS suppliers as being in one of three types of camps: Best of Breed suppliers, ERP suppliers who sell WMS solutions that are based on the same code base and data model as their larger ERP solution, and suppliers who differentiate themselves based on their knowledge of material handling and often sell WMS and Warehouse Control Systems (which control material handling equipment) as an adjunct to a much bigger material handling consulting or equipment sale.

Material handling-centric suppliers of WMS were not active in acquiring other WMS companies. Many of the larger Material Handling companies had made these acquisitions several years ago.

ERP companies who were active in this area in 2004 and 2005:

--Oracle, for example, acquired PeopleSoft in December of 2004. Previous to this PeopleSoft had acquired JD Edwards, which did offer a WMS solution.

--Infor acquired the ERP companies Lilly Software Associates, NxTrend, and daly.commerce between March and September of 2004.

--Retailix acquired OMI International, which has a best of breed solution focused on the Grocery industry, to increase their product suite in January of 2004.

When ERP companies acquire other ERP companies that have WMS solutions, customers ask themselves questions like "Will they continue to support this platform? Will they continue to improve the functionality? And will the support be at least as good as what we have been experiencing?"

Some prominent Best of Breed companies were acquired as well:

--RedPrairie acquired LIS, a prominent European supplier, in February of 2004 to increase their reach on that continent. RedPrairie, in turn, was acquired by Francisco Partners, a private venture fund, in May of 2005.

--HighJump Software was acquired by 3M in January of 2004. Although not known for software, 3M does have some profitable software divisions. One 3M application, for example, is focused on providing solutions for packaging lines. HighJump subsequently announced they were developing a Production Management solution and there is the prospect that their Supply Chain Execution suite will come to have considerably more manufacturing functionality.

--Catalyst International was acquired by ComVest Investment Partners in September of 2004. Catalyst was a public company. Their shareholders sold out to ComVest who then took them private.

--Yantra was acquired by Sterling Commerce in January of 2004. Sterling's goal is to create a platform for enabling the extended supply chain and they found Yantra's technology stack quite appealing for this purpose.

Acquisitions of Best of Breed vendors can also create questions. When Best of Breed companies are acquired by private investment houses or companies with few roots in the software industry, customers can question how well they understand software in general and their particular industry in particular. Depending on the research cited, 50 to 80 percent of acquisitions never produce the anticipated benefits. The WMS market withstood the surge in acquisitions this year; the true test will be to see how well the acquired companies' revenues hold up in coming years.

For more information on this study, go to: www.arcweb.com/res/wms

Note to Editors: This document can be used with attribution to ARC Advisory Group. For a graphic titled "Total WMS Software & Services Business in Millions of Dollars", please contact mailto:[e-mail].

About ARC: Founded in 1986, ARC Advisory Group has grown to become the Thought Leader in Manufacturing and Supply Chain solutions. No matter how complex your business issues, our analysts have the expert industry knowledge and first-hand experience to help you find the best answer. We focus on simple yet critical goals: improving your return on assets, operational performance, total cost of ownership, project time-to-benefit, and shareholder value. Further information can be obtained from ARC, Three Allied Drive, Dedham, MA 02026, 781-471-1000, Fax [phone], E-mail [e-mail], Web www.ARCweb.com.