Thursday, May 07, 2009

Open Text to Acquire Vignette: Is Open Text Itself Next?

Open Text has acquired Vignette yesterday for $310 million paying $8 in cash and 0.1447 Open Text shares for every VIGN share - Vignette has 23.1 million shares (for an approximate value of $12.70 per VIGN share).  On my blog posting dated January 31st, I mentioned Open Text as one of the likely candidates to take Vignette out:

As Open Text already has a WCM solution with RedDot, according to Gartner Magic Quadrant for the the Enterprise Content Management space, it is already listed as a market leader along with IBM, EMC, Oracle and of course Microsoft. In the Gartner report Vignette is cited as having a solid customer base as a positive; Open Text continues to consolidate the industry by taking out another pure-play competitor and buying an affordable maintenance revenue stream.

Financially, Open Text’s proposed acquisition of Vignette makes sense, but I would question the strategic rationale of buying a company that appears to be in decline as they have been losing customers for years, something that's unlikely to change under Open Text, which will have its hands full with not only integrating the two product platforms but also stabilizing the revenue decline. Open Text has a long history of adding revenue through acquisitions; The formula is simple: buy cheap and cut costs at the acquired firm. Time will tell if Open Text can't repeat the formula with Vignette.  The deal values Vignette at about one time enterprise value to sales. By contrast, Autonomy’s recent acquisition of Interwoven valued Interwoven at two times EV to sales (see my blog post:

Open Text can also use Vignette's $143 million in cash and short-term investments to help fund the acquisition.  Yesterday’s announcement comes about a month after Open Text acquired Toronto-based Vizible, a privately held maker of digital media interface products. Last fall, Open Text acquired Captaris Inc. in an all-cash deal worth $131 million. Captaris provides software that allows companies to manage documents electronically. 

Open Text is the only remaining public ECM vendor, following years of consolidation in the space. The ECM market has been consolidating for years and OTEX is the last independent vendor standing. If SAP or Oracle have sights on this portion of the enterprise software market Open Text is the only pure-play ECM vendor, and hence that makes it an acquisition candidate. In my opinion, SAP will outbid any other competitor as they would have too much to lose given the long standing partnership and jointly developed solutions particularly in Europe.  SAP CEO following the Business Object acquisition last year pointed out that they could look at ECM next.

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