it's called RedPrairie, but investors are seeing green

Private equity investors Advent International and Vestar Equity Partners have cashed out of RedPrairie. But there's no cause for alarm. A new financial partner has arrived to usher it to the next level. Private equity firm Francisco Partners announced it was acquiring RedPrairie in April.

Word on the street is that RedPrairie, which markets warehouse management systems (WMS), will use the funding to acquire other software makers in a bid to challenge industry leader Manhattan Associates. But first it will have to close a fairly wide gap. RedPrairie's estimated revenue for 2004 was $122 million, and estimates for this year run in the range of $140 million. By contrast, publicly traded Manhattan Associates, the largest WMS provider, reported sales of $215 million in 2004.

But that doesn't mean RedPrairie will only be looking to acquire other WMS providers. In fact, that would be a mistake, says Beth Enslow, vice president of enterprise research at Aberdeen Group. RedPrairie's core WMS market is becoming a commodity market, she says. These days, most companies seeking to automate warehouse management simply buy a module from their ERP systems vendors, Enslow explains, limiting the pool of prospective customers.

"I think the biggest challenge for RedPrairie is going to be putting together a growth path that shows not only that they can grow in the core warehouse space," says Enslow, "but that they can grow revenue in extended logistics processes." She expects that RedPrairie will concentrate on acquiring companies that specialize in mobile resource management, transportation, and other "blue collar" logistics and inventory optimization segments.

In the meantime, Enslow believes RedPrairie's customers have nothing to worry about. "Customers should view this as a non-disruptive event," she says. "Francisco Partners is an equity company, not a software vendor, so expect little to none of the disruption to products, technology roadmaps, staff, support, and so on that occur when a software vendor acquires a company."