Will Open Text Suffer Acquisition Indigestion? - InformationWeek

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9/5/2008
10:43 AM
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Will Open Text Suffer Acquisition Indigestion?

Yesterday I got a call from my friend Paul Steep at Scotia Capital regarding this announcement from ECM vendor Open Text. Yes, you guessed it, ECM vendor Open Text is acquring again. Just as we predicted in July the firm has announced its intentions to buy Captaris... Although this is relatively small acquisition ($131 million), it is a potentially complex one.

Yesterday I got a call from my friend Paul Steep at Scotia Capital regarding this announcement from ECM vendor Open Text. Yes, you guessed it, Open Text is acquring again. Just as I predicted in July the firm has announced its intentions to buy Captaris.

At first glance it appears to be a good deal for Open Text, as it provides them with capture technology (image and text recognition, a' la Kofax) that they previously lacked. Captaris themselves acquired Oce Document Technology (ODT) a German-based forms recognition firm in January 2008 and absorbed its DOKuStar product range.And if that were all there was to it, then case closed. However, although this is relatively small acquisition ($131 million), it is a potentially complex one. Captaris (via ODT technology) certainly adds to Open Text's portfolio in a notable way -- but there is much more to Captaris than capture software.

In fact the bulk of Captaris' revenue comes from its RightFax product suite, with a customer base of 23,000. And as the name suggests, RightFax captures incoming faxes, and via a dedicated server allows their easy distribution across the network. It's a well-respected product, but one that Open Text will now have to maintain and develop, along with supporting a very large and fragmented customer base. Sure, there will be cross- and up-sell opportunities galore, but Open Text is not IBM and arguably does not have the scale or resources to continue to be stretched ever more thinly. Add to this the fact that Captaris also has a document management and workflow product suite (and related customers) that will somehow have to be digested, integrated, and supported, and a smallish deal of an embattled company starts to look less glittering. As a potential customer, it will pay to wait and observe here.

It should be said though that this is a very typical Open Text acquisition, targeting a firm on the verge of hitting hard times with an appealing customer base. It's a deal that will likely make Open Text's shareholders happy, and managed properly will probably boost the bottom line. But it's more of a mixed bag for potential buyers and existing Open Text customers, since there is only so much love to go around, and the company is getting stretched very thing these days. Add to this the fact that this acquisition may just be an appetizer before Open Text snaps up a bigger fish such as Interwoven or Vignette, and the concern we have long had that Open Text becomes more of a holding company than an ECM firm starts to become a reality.Yesterday I got a call from my friend Paul Steep at Scotia Capital regarding this announcement from ECM vendor Open Text. Yes, you guessed it, ECM vendor Open Text is acquring again. Just as we predicted in July the firm has announced its intentions to buy Captaris... Although this is relatively small acquisition ($131 million), it is a potentially complex one.

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