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.
Contact: Brenon Daly, Kathleen Reidy
Following a massive wave of consolidation that swept through the enterprise content management (ECM) market, the list of significant vendors has basically narrowed to a handful of tech giants. Essentially, it’s just one stand-alone ECM provider with other software companies offering ECM as part of their broader portfolio. All of them have done deals to expand their ECM business, with the collective bill for acquisitions across the sector topping more than $12bn since 2002.
However, all of that activity has been done by – and for – proprietary software firms. In a recent report, my colleague Kathleen Reidy analyzes how M&A might play out for open source content management startups. Granted, the market is still young, with many of the startups still bootstrapped. (Reidy looks at a dozen potential open source content management targets, including their funding and their focus.)
So which startup might be the first to go? We speculate that Alfresco Software could eventually find itself inside a larger company. However, it probably won’t be the company we initially thought it would be. Adobe and Alfresco have a tight relationship, with Adobe embedding an Alfresco repository in its LiveCycle for content services like workflow, indexing and version control. But with Adobe reaching across the Atlantic for Day Software, it probably has all the Web content management technology it needs.
Contact: Brenon Daly
In the startup world, a restart rarely goes anywhere. What typically happens is a company swaps one failing business plan for another, with the inevitable wind-down delayed only by a fresh round of capital. Yet that’s not the case with OpenPages, which secured a solid exit with its sale to IBM after completely overhauling its business.
OpenPages, which sells software for the governance, risk and compliance (GRC) market, has virtually nothing in common with the company that started out in 1996. As its name implies, OpenPages was originally a content management vendor. The firm survived the dot-com bust, but only after trimming its headcount from more than 300 down to 15. In the aftermath, it also switched to Plan B for the business: GRC.
Although the initial draw to the GRC space was Sarbanes-Oxley, OpenPages found success in the broader market. By 2006, Sarbanes-Oxley only accounted for about 15% of revenue at the firm. As it recast its business, OpenPages also recapitalized the business. It raised some $10m in 2004 and added another $10m in 2007. (Back in the Bubble Era, it had raised about $60m from investors.)
The sale to IBM makes a fair amount of sense, both strategically and financially. Big Blue and OpenPages have been partners for at least three years. In addition to OpenPages’ technology fitting well with the BI portfolio IBM acquired with Cognos, there’s also a large chunk of services revenue that Big Blue can pocket around an OpenPages implementation. (OpenPages has some 140 customers.)
And, at least as we understand the deal, the exit valued OpenPages at a healthy 5 times its estimated $35m in sales. (Both the price and the valuation line up almost exactly with the other large GRC deal of the year, EMC’s purchase of Archer Technologies back in January.) In our view, whatever valuation OpenPages got should probably be viewed as a rich one when we consider the fact that the company nearly died penniless earlier in its life.
Contact: Brenon Daly, China Martens
Official word from salesforce.com is that its recently announced Chatter product was developed in-house. And that would certainly be in keeping with the company’s history of staying away from M&A. Since it opened its doors a decade ago, salesforce.com has done just five tiny deals. The vendor certainly has one of the lowest ratios of total M&A spending (probably around $70m) to market capitalization ($7.7bn) of any of the big software vendors.
Nonetheless, there was some chatter (if you’ll pardon the pun) that salesforce.com may have acquired some technology from a small startup to shore up the recommendation engine portion of Chatter, a collaboration/social networking offering that’s slated to come out next year. The M&A speculation centered on a startup that perhaps provided some natural-language search capability. We would note that a small shopping trip by salesforce.com – if, indeed, there was one – to get some social networking/natural-language technology wouldn’t be without precedent. Rival CRM vendor RightNow tucked in HiveLive, which had just 25 customers, in a $6m deal last summer.
Whether or not salesforce.com went shopping for part of Chatter, it’s worth pointing out that the firm has used M&A as a way to go after Microsoft’s SharePoint in the past. In early 2007, the company picked up Koral, an early-stage content management startup that salesforce.com had effectively been incubating. (And on a smaller scale, several months after that, it quietly acquired a tiny social networking startup, CrispyNews.)
However, we’re guessing that those purchases, particularly the Koral deal, haven’t generated the returns that salesforce.com might have hoped. The vendor originally said that Salesforce Content – an add-on, extra-cost module based partly on Koral – could do to SharePoint (among other document management offerings) what salesforce.com did to Siebel in CRM. That hasn’t come close to happening. In fact, salesforce.com just announced that Content will be available free of charge to all customers.
Contact: Brenon Daly
With the US government having blessed on Friday the pending marriage between Open Text and Vignette, the only remaining obstacle in the $310m pairing is a vote by Vignette shareholders next month. And we expect pretty quick approval of the offer from Vignette’s long-suffering shareholders, who had seen their shares lose half their value in the half-decade preceding Open Text’s move. Over that same period, Open Text stock had gained about 16%, handily outperforming the 15% loss posted by the broader Nasdaq Index. (Share price is important in this transaction because Open Text is paying roughly one-third of the bill for Vignette in equity. Open Text stock is up nearly 10% since the deal announcement.)
If, as expected, Vignette shareholders sign off on the sale in their July 21 vote, the deal would mark the second major enterprise content management (ECM) vendor taken off the board in 2009. In January, Autonomy Corp announced a somewhat unexpected move into ECM by shelling out $775m in cash for Interwoven. That transaction closed in mid-March. The recent pairings continue a trend of major consolidation in the ECM market that started back in 2003, with EMC buying Documentum for $1.8bn. IBM, Oracle and Hewlett-Packard have also announced ECM deals of their own, pushing the announced value of acquisitions in the sector to $9.4bn since January 2002. For those of you keeping score at home, the one notable enterprise software company that hasn’t made an ECM move of its own is SAP. Of course, SAP just happens to be the largest partner for Open Text. So if the German giant does look to make a buy, we have a pretty good idea of who it might call.
Contact: Brenon Daly, Kathleen Reidy
If Autonomy Corp’s $775m purchase last week of Interwoven came out of left field, we suspect the next major enterprise content management (ECM) deal will bring together a buyer and seller much more familiar with each other. As it stands now, Open Text is kingpin of the stand-alone ECM vendors. (The market capitalization of the Canadian company is almost 10 times larger than that of poor old Vignette, which we heard in the past was on the block.) Open Text is slated to report its fiscal second-quarter results Wednesday afternoon.
Most of the big software vendors have already done their ECM shopping, starting with EMC’s purchase of Documentum more than a half-decade ago. More recently, IBM and Oracle made significant purchases. And now we can add Autonomy to the list of shoppers, despite the company having downplayed the importance of content management in the past. (Apparently, it was important enough to Autonomy for it to ink the third-largest ECM deal.)
So who might be eyeing Open Text, which currently sports an enterprise value of $1.7bn? The obvious answer – and one that’s been around for some time now – is SAP. The German giant is Open Text’s largest partner, reselling four different products. Competitively, we don’t see Autonomy’s purchase of Interwoven affecting business much at Open Text, much less acting as a catalyst for any deal with SAP. (With its focus on the legal market, Interwoven only really bumped into the Hummingbird products that Open Text picked up when it bought the fellow Canadian company in mid-2006.) Still, SAP has already made one multibillion-dollar move to consolidate the software industry, acquiring Business Objects for $6.8bn in October 2007. If it looks to make another Oracle-style play, we guess Open Text would be at the top of the list.
Largest ECM deals
||EV/TTM sales multiple
Source: The 451 M&A KnowledgeBase
Contact: Brenon Daly
Known as a turnaround guy for most of his career, Joe Cowan didn’t actually have too much fixing up to do at his latest posting as chief executive of content management vendor Interwoven. After he took over Interwoven’s top post in early April 2007, the business hummed along with sales growth in the mid-teens and solid profitability. Under Cowan’s leadership, shares of Interwoven dropped just 9%, less than one-quarter the decline posted by the Nasdaq over that same period. And never mind the southbound performance of shares of rival Vignette.
Cowan’s work at Interwoven stands in sharp contrast to earlier postings at Baan and Manugistics, scandal-tainted companies with declining sales and heavy losses. However, the end result of most of his engagements has been the same: a sale of the company. As a testament to the difference in the relative health of the two most-recent exits that Cowan has helped broker, consider that Interwoven is getting valued at twice the price-to-sales multiple of Manugistics. Viewed another way, Interwoven sold for almost 19x EBITDA, compared to closer to 13x EBITDA for Manugistics. We understand that Cowan will be staying on at acquirer Autonomy Corp after the close of the deal, at least for a bit.
CEO Joe Cowan: A tale of two exits
Source: The 451 M&A KnowledgeBase
For the second time in as many years, Open Text has topped a buyout shop to take home a struggling enterprise content management (ECM) vendor. In mid-2006, Open Text crashed a planned take-private of rival Hummingbird by Symphony Technology Group, along with financial backer Tennenbaum Capital Partners. To land Hummingbird, Open Text ended up paying about $18m more than the buyout firm had offered.
Open Text won’t have to reach nearly as far into its pockets this time around. On Thursday, the company bid $4.80 per share of Captaris, valuing the document capture technology vendor at $131m. That’s only a $1.4m – or less than 1% of deal value – bump over an existing offer from buyout firm Vector Capital. Vector made the offer of $4.75 per share of Captaris in March, six months after it began pushing the company to sell.
By the time Vector met with Captaris, it had snapped up about 2.7 million shares, or about 10% of the company. However, according to an SEC filing on its purchases, Vector paid around $5 per share. It’s hard to see how the buyout firm is going to be too far above water on its Captaris holdings, given the $4.80 per share offer from Open Text. As a final note, we close with the fact that if Vector had just bought a slug of Open Text stock when it started buying Captaris shares, it would be up nearly 40% on that holding. We know Vector isn’t a money management firm, but in this case, it would have been better to buy the buyer, rather than the seller.