Open Text Buys Vignette: Investment or Impulse?Open Text Buys Vignette: Investment or Impulse?
Why would Open Text, a $725 million vendor (with a diverse product catalog, but best known for its wide collection of ECM products) want to risk its respectable 9-percent operating margin by acquiring a competitor with negative profitability and a rapidly dwindling stream of license revenues?
May 7, 2009
The business world is full of tumult these days, and times like these are known to give rise to strange bedpartners. But few would have expected the kind of union announced by Open Text yesterday. The Waterloo, Ontario-based company says it will acquire Vignette Corporation outright, later this year, in a deal worth approximately $310 million.
According to the announcement by Open Text, Vignette shareholders will receive US $8.00 in cash, plus 0.1447 of an Open Text common share for every share of Vignette common stock, which equates to something like US $12.70 per share -- a premium of 74% above the 30 trading day average closing price of Vignette shares and barely a dollar more than book value. Why would Open Text, a $725 million vendor (with a diverse product catalog, but best known for its wide collection of ECM products) want to risk its respectable 9-percent operating margin by acquiring a competitor with negative profitability and a rapidly dwindling stream of license revenues?Perhaps the idea is to bump Open Text's top-line revenue to $850 million or so, short term, while it cherrypicks its way through the Vignette catalog of technologies, deciding which to keep and which to sunset. For the short to intermediate term, we expect Open Text to keep Vignette's product line intact (while achieving "operational efficiencies" via big layoffs in Finance and HR). When Autonomy came along and bought Interwoven a few months back, it raised eyebrows, but at least there were some plausible technology synergies. The synergies are much fewer with Open Text and Vignette. In fact, technologically speaking, what Open Text is getting, with Vignette, is a lot of overlap. Open Text already has a WCM offering (the product formerly known as RedDot); it also has a Records Management product, a Collaboration and Community suite, and a mature DAM product (Artesia, which is vastly richer and more functional than Vignette Media 7). The biggest single thing Open Text gets that it didn't already have one or more of is a Java-based portal product. But that brings up another issue, which is that at a core architectural level, Open Text's mishmash of .NET, C++, and Java technologies is not particularly well aligned with Vignette's J2EE-based systems. Ironically, to integrate any of Vignette's pieces with Open Text's might well require CMIS (the interoperability standard proposed by EMC, Open Text, Microsoft, and others). Vignette only adds another layer to -- it in no way reconciles -- Open Text's crazy quilt of technologies. Of course, this is not a new story for Open Text, nor our industry as a whole. Vendors typically acquire customers and brands, rather than technologies. So what does it mean for Vignette customers? As we say, it probably doesn't mean much, for now. In fact, they are probably relieved that the company finally sold itself after long speculation. We expect Open Text to keep the Vignette product line (and the support organization) intact for the forseeable future. It wouldn't make sense to risk damage to a revenue stream that you've just taken on. But then, nothing about Open Text's spending sprees makes a great deal of sense. Open Text has made many acquisitions over the years, and (by and large) the various acquired pieces have resisted assimilation into a coherently integrated whole. Will Vignette be different? Probably not. Longer term, it's hard to say what the implications are for Vignette customers. Perhaps as with RedDot (obtained via Open Text's acquisition of Hummingbird in 2006), Vignette will remain a separate subculture within the parent company, neither completely subsumed into the Waterloo headquarters nor walled off from the mother ship. An acquired business unit can live that way for a long time. But on business fundamentals, Vignette is a troubling case. Merely rationalizing administrative employees isn't going to make the Vignette line profitable again or reverse dwindling license revenues. And the Open Text purchase isn't likely to send a "buy" signal to potential customers who still have Vignette on their short lists. In any event, we should bear in mind that the Vignette purchase technically isn't a "done deal" yet (it is slated to close in the second half of the year, subject to stockholder approval). One thing's for sure, though, which is that even if Open Text continues to keep the Vignette brand name, today marks the end of an era. One chapter in Vignette's long and interesting history comes to an end, while another one begins. Look for more of the story in the CMS Watch Web CMS Report 2009.Why would Open Text, a $725 million vendor (with a diverse product catalog, but best known for its wide collection of ECM products) want to risk its respectable 9-percent operating margin by acquiring a competitor with negative profitability and a rapidly dwindling stream of license revenues?
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