‘Speaking volumes’: Panasonic turning dial too far on $6.5 bln deal

The Panasonic booth is shown during the 2020 CES in Las Vegas, Nevada, U.S. January 7, 2020. Source: REUTERS/Steve Marcus

Panasonic’s signals are getting scrambled. When Yuki Kusumi becomes chief executive in April, he may be embarking on the company’s chunkiest acquisition in a decade despite plans to simplify the Japanese electronics conglomerate. Shelling out $6.5 billion to buy the rest of supply-chain software developer Blue Yonder would boost the group’s profitability, but the valuation implies a degree of financial and strategic overload.

The century-old company known for stereo equipment and fax machines is amid another restructuring. It redesigned the organisational chart, with intentions to cut costs and exit struggling businesses such as solar panels. The idea is to fatten the EBITDA margin to at least 10% for core activities in the coming year, compared with the group’s roughly 8% showing as estimated by analysts for the one ending March 2021.

New sprawl is being added, however. Panasonic recently established a sports division, to do more with the volleyball and rugby teams it owns while providing digital marketing and event management to outsiders. And now comes the possibility of a big acquisition. The company says no decision has been made.

Panasonic first invested in heavily indebted Blue Yonder last May, while its own “connected solutions” business accounted for 13% of sales in 2020. The appeal of recurring revenue from software subscriptions is tempting, but Panasonic’s experience is mostly with the aviation industry and mobile systems while Blue Yonder caters to retail customers. Culture clash is another risk. The company’s last deal on this scale was of domestic peer Sanyo in 2011.

The numbers are equally concerning. Blue Yonder is expected to generate about $200 million of EBITDA this year, according to credit analysts at S&P Global Ratings. Assuming the purchase price cited by the Nikkei for the 80% Panasonic doesn’t already own is based on the enterprise value, the imputed multiple is about 40 times. That’s twice the business software average, per Refinitiv.

The reaction from investors is telling. Although Blue Yonder’s specialty of making supply chains more efficient may be in high demand, Panasonic lost 6.6%, or $2 billion, of its market value on the deal report. It suggests the company would be better off streamlining its own operations before spending heavily to peddle such solutions to others.