Contact: Brenon Daly
The gloves are coming off in the latest consolidation in the enterprise content management (ECM) market. Just a month after accepting a $195m offer from the ever-acquisitive Lexmark, old-line Swedish ECM vendor ReadSoft has found itself in the center of an unusual public bidding war. On Wednesday, PE-backed Hyland Software topped the bid by a few million dollars.
The brawl over ReadSoft pits two able acquirers – one strategic, one financial – against each other. Collectively, Lexmark and Hyland have done 16 deals over the past half-decade alone. But looking inside those transactions, we can see differences between the buyers, which may help indicate how the fight for ReadSoft will play out. On paper, it would appear that Lexmark needs ReadSoft more than Hyland does.
For starters, Lexmark has been a more active acquirer than Hyland. Since the printer company established its ECM unit in mid-2010 with the $280m purchase of Perceptive Software, it has shelled out an additional $600m on another nine targets, according to The 451 M&A KnowledgeBase . In comparison, Hyland has announced just six deals since PE shop Thoma Bravo acquired a majority stake in July 2007.
Further, Lexmark has been more deliberate in buying larger companies, while Hyland has targeted smaller bolt-on acquisitions that typically bring either technology (document capture, for example) or vertical market specialization (e.g., healthcare) to its flagship OnBase product. In short, Hyland’s M&A approach – including playing the spoiler against Lexmark – appears more opportunistic than the systematic drive for scale at Lexmark.
In our initial analysis of Lexmark’s reach for ReadSoft, my colleague Alan Pelz-Sharpe noted that while the transaction would bring a new customer base and about $120m in revenue to Lexmark, there was a fair amount of technology overlap. (451 Research subscribers can click here for the full report.) But for Lexmark, it has little choice but to buy in bulk.
Because of the declines in its legacy core printer and ink business, overall revenue at Lexmark will drop again this year. While its software business is the fastest-growing division at the company, it can’t make up for the drop-off in printers. Lexmark has set the goal for its software unit hitting about $500m in revenue in 2016, which would be about twice the revenue it generated in 2013. To get there, Lexmark will have to continue to rely on M&A, which just may include countering for ReadSoft.
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