An Ottawa-based tech company made headlines Monday evening with a bold move to disrupt the retail industry – and it wasn’t Shopify.
Though it doesn’t get the same media attention as its flashier publicly traded cousin from the e-commerce world, Kanata-based Kinaxis has enjoyed a stellar start to 2020 in its own right. With the COVID-19 pandemic wreaking havoc with the global economy, demand for Kinaxis’s supply chain management software – which helps enterprise-level customers in a range of industries ensure they have the right amount of material on hand to manufacture their goods – has been soaring.
The firm’s revenues in the first quarter jumped 15 per cent over last year, and on a conference call with analysts in early May, CEO John Sicard said it was “a matter of when, not if” the company would expand into new market verticals.
Barely a month later, Sicard has delivered on that promise.
Kinaxis said late Monday afternoon it’s reached an agreement in principle to acquire Toronto-based software-maker Rubikloud in an all-cash deal worth US$60 million.
Founded in 2013, Rubikloud uses machine-learning technology to help large-scale retailers in the health and beauty, household goods and grocery sectors predict how much inventory they need to keep their shelves properly stocked and determine sales and pricing strategies.
The firm’s AI capability will be a valuable addition to Kinaxis’s IP. More importantly, the growing 76-employee company instantly makes Kinaxis a force to be reckoned with in the retail supply-chain segment.
Drawing on data from a range of sources, Rubikloud’s solution helps retailers such as supermarket chains predict demand for literally everything from soup to nuts. That’s highly valuable intelligence in an industry that often has razor-thin margins, where tossing out hundreds of pounds of unsold lettuce and tomatoes could mean the difference between profit and loss.
“This is big business in retail,” Sicard said. “Gaining a point of margin here or there is a big, big deal when you’re a large retailer.”
Kinaxis has quietly become a major player in its industry thanks to amassing a list of marquee customers – including Ford, Nissan and Proctor and Gamble – in the technology, aerospace and defence, automotive, life sciences, consumer packaged goods and industrial equipment sectors. The firm had yet to dip its toe into the massive retail segment – until now.
“I’ve been asked before, will Kinaxis ever enter the retail market, and I’ve always said the same thing – it’s a matter of when, not if,” Sicard reiterated in an interview with OBJ late last week before the deal was publicly announced.
“It’s a really important space for us, and Rubikloud has spent the last (seven) years building a successful pedigree entering that market. For us, we’re acquiring that pedigree.”
The appeal of the retail market is obvious for Kinaxis. While the company was already on pace to exceed $200 million in revenues this fiscal year even before Monday’s deal and is valued at nearly $5 billion, Sicard says the acquisition of Rubikloud has the potential to take Kinaxis to another level.
The retail vertical, he explains, could generate more business for Kinaxis than all the other sectors the company now serves combined.
Unlike other leading Kanata tech giants such as Calian Group and Mitel, Kinaxis has never been a major player in the M&A realm. But Sicard and his management team clearly saw an opportunity when the CEO was introduced to Rubikloud founder Kerry Liu in late 2019.
The two met again early this year and quickly hit it off. Liu, who knew of Kinaxis by reputation, said he felt a “strong connection” between the companies from the get-go, and talks proceeded quickly toward a deal.
Noting that the coronavirus pandemic has “shed a lot of light on a lot of things that can happen when your supply chain is broken,” Liu said the marriage of his technology with Kinaxis’s global sales teams and channel partners will only accelerate the combined firm’s ascent.
“This is by no means a company that is done growing,” he said.
Acquiring Rubikloud – which has staff on the ground in London and Hong Kong in addition to the GTA – also gives Kinaxis a foothold in the Toronto tech ecosystem, Sicard added.
Kinaxis is closing in on 900 employees, “and we’ll be 9,000 some day,” he said. “I think (the deal) gives us another path to talent as we continue to grow.”
Sicard said he thinks the acquisition, which is expected to close within 60 days, has significant symbolic value as well.
Deals of this magnitude involving two companies from north of the border are few and far between, he noted, and he hopes the “strategic union” of two made-in-Canada success stories sends a signal that hometown tech enterprises can compete on a global stage without surrendering their IP to larger U.S. or European organizations.
“You usually find out that a foreign entity is buying Canadian talent and technology,” he said. “It’s great to see things stay in a Canadian family, so to speak.”
Kinaxis shares were up nearly $3 to $184.97 in early morning trading on the Toronto Stock Exchange on Tuesday.