At long last, Open Text makes a BPM play

Contact:  Brenon Daly

More than a year and a half ago, we noted that Metastorm was looking to buy its way into some adjacent markets such as risk and compliance or perhaps collaboration. The planned shopping trip would have come after the business process management (BPM) provider pulled its IPO paperwork. At the time, however, we wondered if the would-be IPO candidate might not head to the other exit: a trade sale.

Specifically, we floated the single name of Open Text, which we noted had consolidated much of its core enterprise content management (ECM) market but still appeared to be losing deals to rival vendors with more robust BPM offerings. However, we thought that valuation might make it tough to bridge the bid/ask spread between the two sides. In most of its dozen deals over the past decade, Open Text has paid somewhere in the range of 0.5-1.5 times trailing sales for its acquisitions. That’s true for its most visible purchases, including deals that saw it gobble up rival ECM firms Hummingbird in August 2006 and Vignette in May 2009, as well as add image capture software maker Captaris in September 2008.

As it turns out, valuation didn’t necessarily snag Open Text’s significant acquisition to bolster its BPM credentials. The company said late last week that it will hand over $182m in cash for Metastorm. In a conference call, Open Text indicated that Metastorm was generating $70-75m in sales, implying a valuation of about 2.5x sales for the BPM provider. That’s a fair bit richer than the valuation that the Canadian consolidator has paid in the past. However, we suspect that guidance assumes a bit of revenue write-downs and (perhaps) a bit of sandbagging. The reason? Metastorm said in mid-2009 that it was above that level of revenue in 2008 and targeting $90m in 2009. In its IPO filing, Metastorm reported $60m in sales for 2007.