A New McHugh

$50 million allows logistics software firm to be independent, separate from former parent  

BY KATHLEEN HICKEY  

McHugh Software International has received a $50 million investment from Advent International, a private equity firm, and GE Capital, an investment subsidiary of General Electric Co., that will allow it to separate from Pinnacle Automation and become an independent company.  

Waukesha, Wis.-based McHugh produces warehouse, labor, and transportation management software systems. Its former parent company, Pinnacle, is an umbrella company for five different materials handling hardware and software companies.  

McHugh started the process toward independence a year ago, said Jeff Cashman, company senior vice president of global marketing, strategy and business development. "About a year ago we laid out our strategy to Pinnacle, that we needed to go out and find a private investor to help McHugh," he said. The company will continue to work with Pinnacle "just as we would with any good partner," said Cashman. "It's a real opportunity for McHugh to be on their own and invest. It allows us to take advantage and be proactive in defining and leading this marketplace."  

Advent will hold a "significant minority equity position" and will be "driving a lot of the stuff going on" at the new McHugh, said Cashman. He declined to name the exact percentage of holdings Advent will have in McHugh or the amount that Advent and GE each invested in McHugh. "Advent is the principal investor and GE is a partner with that event," said John Clark, a marketing analyst with the company. "It's really an investment from Advent."  

Said Cashman on Advent's role with McHugh: "They're going to be giving us a lot of good guidance and direction. They've got some very strong partners around the world and have a significant amount of experience with software companies." Advent decided to invest in McHugh "based not only on the financial aspects but also because they believed we would be a major space in the software arena. And we're a good match culturally," he added.  

The company plans to accelerate product research and development and global marketing. Plans are already in place to expand into Asia and South America, said Cashman. Within the company's core competency, logistics execution software, McHugh is reviewing its software lineup "to make sure our suite of products is complete" and identifying key vertical markets and market requirements.  

McHugh plans to open offices in Australia, Singapore and Hong Kong in 1999 - Australia by the end of the first quarter, Singapore by the third quarter, and Hong Kong by the end of the year, said Cashman. In the more distant future, "when the market becomes available," McHugh plans to "have localized products that will be able to service those markets," he said.  

South America, particularly Argentina and Brazil, also are targets. McHugh plans to open its first South American office in Argentina or Brazil by the end of 1999 or by 2000. In all cases, said Cashman, the company will be "going in as McHugh, not (through a) distributor." McHugh will be broadening the software to Windows NT and Unix and refining its product, but will not be changing its hardware configuration for different markets, he said. "We feel good about the platform we're on," said Cashman.  

"We're also focusing on an overall vision with logistics execution systems, which is being validated with our competition," said Cashman. "We launched that industry to a degree. Now we have to move on and look to the future, keeping in mind our core competency, culture and values. You're not going to see us spread out too thin."  

McHugh plans to increase attention on all of its markets - food and package goods, retail supply and distribution, and high-tech electronics. Cashman said the company has increased its focus on food distribution and service and third-party logistics in an initiative begun three months ago.  

Within the next 12 to 18 months, McHugh will be releasing its "next generation of products," said Cashman. That means adding functionality to current products, he said. McHugh does not plan to release any brand-new software.  

McHugh also is looking to its partners and alliances to propel the company farther, said Cashman. "We have great partnerships with Oracle, PeopleSoft and Baan. Those integrations are only going to get further enriched - we will have joint marketing and selling," he said. "We're looking at Vastera, with which we'll be working closely. We will look at our alliances to broaden our footprint and deepen our functionality."  

Steven Gold, a partner with end-to-end supply-chain strategy for KPMG, believes that McHugh's new autonomy will give the company "the ability to be a pure software organization and do maybe a lot of things they haven't been able to do in the past."  

And what the company is doing isn't that unusual, he added. "It's more an indication that the marketplace is changing. This market is the next hot integration arena for a lot of companies which historically have not focused on it," said Gold. "If you look at their competitors - Manhattan, Optum, EXE - those companies as well have new management and capital backing. All are seeking outside capital to fund growth. It's a very different view from five to 10 years ago."  

Gold declined to guess whether McHugh's move would change the company's marketplace standing, instead noting that KPMG "sees (logistics execution software) as a very, very explosive-type industry."