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Sunday, November 30, 2008
Ricoh Completes Acquisition of IKON Office Solutions
Tuesday, October 21, 2008
Winds Shift for Renewable Energy As Oil Price Sinks, Money Gets Tight
By TOM WRIGHT
The prospects of renewable-energy companies soared with oil prices, but the global credit crunch and the easing of energy costs have brought them back to earth with a thud. With banks reluctant to lend and their stock prices tumbling, many green-energy concerns are struggling to find the long-term funding they need to expand in a capital-intensive industry. In the past three months, global renewable-energy stocks tracked by New Energy Finance, a London-based consultancy, have dropped about 45%, compared with a 23% decline in the Dow Jones Industrial Average over the same period.
The sector's problems have been compounded by the skid in oil prices to below $70 a barrel last week from more than $147 in July. The sudden reversal in crude prices has removed -- at least temporarily -- a key rationale for investors to pump billions of dollars into alternative fuels, industry analysts say.
The result: At least in the short term, a slew of projects from palm-oil-based biodiesel plants in Indonesia and Malaysia to wind farms and solar projects across the U.S. and Europe may not be able to get funding.
Some companies are shelving plans for IPOs as long as stock markets remain weak and volatile. German solar-power company Schott Solar AG, for example, called off a $900 million initial public offering earlier this month, citing poor market conditions.
But some listed companies have little choice but to issue more shares given the difficulty of getting bank loans. Indian wind-turbine producer Suzlon Energy Ltd.'s stock has fallen more than 40% since late September, when it announced plans for a $380 million rights issue later this year to raise capital. Earlier, the company had told analysts it had lined up euro-denominated bank financing to fund its expansion plans.
U.S. wind-farm developers, which have commitments to build a record number of projects in 2009, are also scrambling for alternative sources of credit after the troubles of Lehman Brothers Holdings Inc. and American International Group Inc., both of which were big lenders to the green-energy sector, says Eric Silverman, a partner at law firm Milbank, Tweed, Hadley & McCloy LLP in New York.
"The credit crunch deals a negative blow to the whole [wind] sector because it's heavily dependent on debt financing," he says.
General Electric Co.'s GE Energy Financial Services, another major investor in U.S. wind-farm development, is cutting back outlays because the credit crisis has made it difficult to price investments. "This is a very tough market for any investor," says Andrew Katell, a spokesman for GE Energy Financial Services. "Everyone is impacted."
To be sure, many investors, including GE, still see renewable energy as a long-term opportunity to make money because of the apparent political will in the U.S. and Europe to reduce dependence on Middle Eastern oil and cut greenhouse-gas emissions. For example, the financial-bailout package approved by Congress this month also included provisions to extend federal tax breaks for wind energy by one year and solar by eight years.
For now, though, many analysts say tight credit is likely to force further consolidation in the sector, with large state-owned utilities and private-equity firms that can still access bank credit or are sitting on cash reserves buying up renewable projects from cash-strapped developers. That would accelerate a trend seen recently in the U.S. in which big European players such as Iberdrola Renovables SA of Spain, the world's largest wind-farm developer, and Energias de Portugal SA purchased smaller U.S. wind companies.
"Over the next 12 months, large utilities have a competitive advantage," says Jonathan Johns, head of renewable-energy research at Ernst & Young in London.
Last month, German power-giant RWE AG agreed to pay $50 million to the British company Helius Energy PLC for a controlling stake in a 65-megawatt biomass-power plant in northern England. RWE will invest a total of $380 million in the wood-pulp-fueled plant, which is due to start operating in 2011.
Hudson Clean Energy Partners, a private-equity firm based in New York, announced last month that it was buying Helium Energy, a small Spanish wind and solar developer, for up to €100 million, or $134.5 million. Hudson, which was formed in 2006 by a former head of Goldman Sachs Group Inc.'s green-energy investment-banking team in the U.S., is buying the assets from Hemeretik S.L., a Spanish construction and property company that decided to ditch its renewable-energy business amid the economic downturn. Some global-infrastructure funds are also dumping clean-energy assets to strengthen their balance sheets. Australian investment firm Babcock & Brown, whose shares have been pummeled amid concerns over its heavy debt, is planning to sell 2,000 megawatts of wind-farm assets in Europe this year, with large European utilities the likely buyers.
Investors are also likely to become more selective about which green projects they back, with those that don't depend on government subsidies likely to attract the most funding in the short term, industry analysts say. That could slow development of cutting-edge alternative-energy technologies like celullosic biofuels, which have received private-equity funding but are still far from commercially viable. They will now have to compete with wind and solar for financing, says Angus McCrone, chief editor of research at New Energy Finance.
Private-equity firms "will now also have many companies from many sectors knocking on their doors," he adds, "especially while IPOs on the stock market are out of the question."
Sunday, October 19, 2008
Hot, Flat, and Crowded - Why We Need a Green Revolution
I have read Thomas Friedman’s new best-seller Hot, Flat, and Crowded which has helped me put the financial crisis and economic recession that we are undergoing in a crystal clear context. His book is a much-needed wake up call for every nation in the world – we desperately need authentic leadership supported by collaboration and innovation. I would strongly recommend it for anyone who has enjoyed The World is Flat and is ready to cross-pollinate the “green revolution” around the world….Here’s what he says about the new book in his blog:
“Thomas L. Friedman's no. 1 bestseller The World Is Flat has helped millions of readers to see globalization in a new way. Now Friedman brings a fresh outlook to the crises of destabilizing climate change and rising competition for energy—both of which could poison our world if we do not act quickly and collectively. His argument speaks to all of us who are concerned about the state of America in the global future.
Friedman proposes that an ambitious national strategy—which he calls "Geo-Greenism"—is not only what we need to save the planet from overheating; it is what we need to make America healthier, richer, more innovative, more productive, and more secure.
As in The World Is Flat, he explains a new era—the Energy-Climate era—through an illuminating account of recent events. He shows how 9/11, Hurricane Katrina, and the flattening of the world by the Internet (which brought 3 billion new consumers onto the world stage) have combined to bring climate and energy issues to Main Street. But they have not gone very far down Main Street; the much-touted "green revolution" has hardly begun. With all that in mind, Friedman sets out the clean-technology breakthroughs we, and the world, will need; he shows that the ET (Energy Technology) revolution will be both transformative and disruptive; and he explains why America must lead this revolution—with the first Green President and a Green New Deal, spurred by the Greenest Generation.
Hot, Flat, and Crowded is classic Thomas L. Friedman—fearless, incisive, forward-looking, and rich in surprising common sense about the world we live in today.”
Private Equity Market Drying up Even in the Middle East
I came across an interesting FT article about the demise of the Private Equity market in the Middle East which has been flushed with petro-dollars. The "L" in the LBO market has disappeared while the strategic buyers with strong balance sheets can simply cherrypick among distressed assets or struggling leveraged firms in the region:
"....Until recently, the Middle East had hoped to sidestep the worst of the financial storm thanks to abundant Gulf oil money. Now even the region's buy-out kings are in a more sombre mood.
"There are new realities in the world," says Ahmed Heikal, chairman of Citadel Capital of Egypt. "People are taking a long, serious look at their portfolios, reassessing their business plans, and delaying exits and fund raising."
Though bankers say leverage is less used in the Middle East than in the west, debt is still a central part of most private equity players' strategy. Typically, a transaction would be leveraged four or five times the target company's earnings before interest, taxes, depreciations and amortisations, according to experts. But international banks that could previously be relied on to supply the needed debt are now rapidly deleveraging.
Local houses are suffering from a domestic cash crunch that economists expect will curtail lending, despite recent liquidity injections. The little credit that remains is much dearer, making deals less profitable. The cost of leverage has doubled in recent months, says Karim El Solh, chief executive of Gulf Capital, an Abu Dhabi-based firm.
"Some people are still in denial," he says. "We are looking at an LBO [leveraged buy-out] industry without the L for a while now."
Private equity has been a fashionable industry in the Middle East in recent years, but the momentum is slowing. Last year 10 funds managed to raise $3.5bn, but so far this year only three funds have been announced and only $1bn committed, according to Preqin, a private equity data provider Preqin estimates that 25 funds are still actively trying to raise approximately $12bn. Private equity insiders say they may face difficulties reaching their targets.
Over 100 funds have been raised in the Gulf in recent years, but not all have performed as expected. The next time investors are approached "they might be less keen on parting with their money," says Mr El Solh.
"In a storm, even turkeys can fly . . . [but] we will now see a consolidation in the region."
The firms that do have cash to spend may still find the Gulf a challenging place to invest.
Most companies are owned by families who have little interest in relinquishing control, and many private equity firms have headed into the wider Middle East to countries such as Egypt, Jordan and Turkey more receptive to investment.
Even more than the rest of the Middle East, the Gulf thrives on personal relationships, and to do deals "you have to drink a lot of coffee with the owners", admits Mr El Solh. Thus, most deals in the Gulf are minority stakes, such as Bahrain-based Investcorp's $98m purchase of a 36 per cent stake in Redington Gulf, a unit of the Indian IT distributor Redington India.
Given market turbulence and poor investor sentiment, firms sitting on mature investment portfolios may also have to sit tight a little longer before exiting. The MSCI Arabian Markets has plummeted 32 per cent this year. And for the foreseeable future "there are no exits. Period", says Mr Heikal....."
Saturday, October 11, 2008
The World is at Severe Risk of a Global Systemic Financial Meltdown and a Severe Global Depression
The G7 countries - the U.S., Japan, Canada, the U.K., Italy, France and Germany - agreed Friday on guidelines to address the world financial crisis but balked at crafting a joint plan, an outcome that forced me to post the following analysis by “Mr. Doom”. I was hoping for a dramatic agreement such as to guarantee bank debt to prevent further market chaos this week, which could end up worse than last.
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By Nouriel Roubini - Oct 9,2008
The US and advanced economies’ financial system is now headed towards a near-systematic financial meltdown as day after day stock markets are in free fall, money markets have shut down while their spreads are skyrocketing, and credit spreads are surging through the roof. There is now the beginning of a generalized run on the banking system of these economies; a collapse of the shadow banking system, i.e. those non-banks (broker dealers, non-bank mortgage lenders, SIV and conduits, hedge funds, money market funds, private equity firms) that, like banks, borrow short and liquid, are highly leveraged and lend and invest long and illiquid and are thus at risk of a run on their short-term liabilities; and now a roll-off of the short term liabilities of the corporate sectors that may lead to widespread bankruptcies of solvent but illiquid financial and non-financial firms.
On the real economic side all the advanced economies representing 55% of global GDP (US, Eurozone, UK, other smaller European countries, Canada, Japan, Australia, New Zealand, Japan) entered a recession even before the massive financial shocks that started in the late summer made the liquidity and credit crunch even more virulent and will thus cause an even more severe recession than the one that started in the spring. So we have a severe recession, a severe financial crisis and a severe banking crisis in advanced economies.
There was no decoupling among advanced economies and there is no decoupling but rather recoupling of the emerging market economies with the severe crisis of the advanced economies. By the third quarter of this year global economic growth will be in negative territory signaling a global recession. The recoupling of emerging markets was initially limited to stock markets that fell even more than those of advanced economies as foreign investors pulled out of these markets; but then it spread to credit markets and money markets and currency markets bringing to the surface the vulnerabilities of many financial systems and corporate sectors that had experienced credit booms and that had borrowed short and in foreign currencies. Countries with large current account deficit and/or large fiscal deficits and with large short term foreign currency liabilities and borrowings have been the most fragile. But even the better performing ones – like the BRICs club of Brazil, Russia, India and China – are now at risk of a hard landing. Trade and financial and currency and confidence channels are now leading to a massive slowdown of growth in emerging markets with many of them now at risk not only of a recession but also of a severe financial crisis.
The crisis was caused by the largest leveraged asset bubble and credit bubble in the history of humanity were excessive leveraging and bubbles were not limited to housing in the US but also to housing in many other countries and excessive borrowing by financial institutions and some segments of the corporate sector and of the public sector in many and different economies: an housing bubble, a mortgage bubble, an equity bubble, a bond bubble, a credit bubble, a commodity bubble, a private equity bubble, a hedge funds bubble are all now bursting at once in the biggest real sector and financial sector deleveraging since the Great Depression.
At this point the recession train has left the station; the financial and banking crisis train has left the station. The delusion that the US and advanced economies contraction would be short and shallow – a V-shaped six month recession – has been replaced by the certainty that this will be a long and protracted U-shaped recession that may last at least two years in the US and close to two years in most of the rest of the world. And given the rising risk of a global systemic financial meltdown the probability that the outcome could become a decade long L-shaped recession – like the one experienced by Japan after the bursting of its real estate and equity bubble – cannot be ruled out.
And in a world where there is a glut and excess capacity of goods while aggregate demand is falling soon enough we will start to worry about deflation, debt deflation, liquidity traps and what monetary policy makers should do to fight deflation when policy rates get dangerously close to zero.
At this point the risk of an imminent stock market crash – like the one-day collapse of 20% plus in US stock prices in 1987 – cannot be ruled out as the financial system is breaking down, panic and lack of confidence in any counterparty is sharply rising and the investors have totally lost faith in the ability of policy authorities to control this meltdown.
This disconnect between more and more aggressive policy actions and easings and greater and greater strains in financial market is scary. When Bear Stearns’ creditors were bailed out to the tune of $30 bn in March the rally in equity, money and credit markets lasted eight weeks; when in July the US Treasury announced legislation to bail out the mortgage giants Fannie and Freddie the rally lasted four weeks; when the actual $200 billion rescue of these firms was undertaken and their $6 trillion liabilities taken over by the US government the rally lasted one day and by the next day the panic has moved to Lehman’s collapse; when AIG was bailed out to the tune of $85 billion the market did not even rally for a day and instead fell 5%. Next when the $700 billion US rescue package was passed by the US Senate and House markets fell another 7% in two days as there was no confidence in this flawed plan and the authorities. Next as authorities in the US and abroad took even more radical policy actions between October 6th and October 9th (payment of interest on reserves, doubling of the liquidity support of banks, extension of credit to the seized corporate sector, guarantees of bank deposits, plans to recapitalize banks, coordinated monetary policy easing, etc.) the stock markets and the credit markets and the money markets fell further and further and at an accelerated rates day after day all week including another 7% fall in U.S. equities today.
When in markets that are clearly way oversold even the most radical policy actions don’t provide rallies or relief to market participants you know that you are one step away from a market crack and a systemic financial sector and corporate sector collapse. A vicious circle of deleveraging, asset collapses, margin calls, cascading falls in asset prices well below falling fundamentals and panic is now underway.
At this point severe damage is done and one cannot rule out a systematic collapse and a global depression. It will take a significant change in leadership of economic policy and very radical, coordinated policy actions among all advanced and emerging market economies to avoid this economic and financial disaster. Urgent and immediate necessary actions that need to be done globally (with some variants across countries depending on the severity of the problem and the overall resources available to the sovereigns) include:
- another rapid round of policy rate cuts of the order of at least 150 basis points on average globally;
- a temporary blanket guarantee of all deposits while a triage between insolvent financial institutions that need to be shut down and distressed but solvent institutions that need to be partially nationalized with injections of public capital is made;
- a rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures;
- massive and unlimited provision of liquidity to solvent financial institutions;
- public provision of credit to the solvent parts of the corporate sector to avoid a short-term debt refinancing crisis for solvent but illiquid corporations and small businesses;
- a massive direct government fiscal stimulus packages that includes public works, infrastructure spending, unemployment benefits, tax rebates to lower income households and provision of grants to strapped and crunched state and local government;
- a rapid resolution of the banking problems via triage, public recapitalization of financial institutions and reduction of the debt burden of distressed households and borrowers;
- an agreement between lender and creditor countries running current account surpluses and borrowing and debtor countries running current account deficits to maintain an orderly financing of deficits and a recycling of the surpluses of creditors to avoid a disorderly adjustment of such imbalances.
At this point anything short of these radical and coordinated actions may lead to a market crash, a global systematic financial meltdown and to a global depression. At this stage central banks that are usually supposed to be the "lenders of last resort" need to become the "lenders of first and only resort" as, under conditions of panic and total loss of confidence, no one in the private sector is lending to anyone else since counterparty risk is extreme. And fiscal authorities that usually are spenders and insurers of last resort need to temporarily become the spenders and insurers of first resort. The fiscal costs of these actions will be large but the economic and fiscal costs of inaction would be of a much larger and severe magnitude. Thus, the time to act is now as all the policy officials of the world are meeting this weekend in Washington at the IMF and World Bank annual meetings.
Thursday, October 02, 2008
Cleantech Funding at Record $2.6B in Q3
Clean technology investments in North America, Europe, China and India increased 17 percent between the second and third quarters of this year to a record $2.6 billion, according to a report released Wednesday. The money invested in 158 companies increased 37 percent compared to the same quarter last year, the report by the Cleantech Group said. The $6.6 billion total for such venture investments through the third quarter already exceeds the full-year 2007 total of $6 billion.
-- THIN-FILM SOLAR: Solar energy companies using thin-film technology raised $620 million. CIGS (copper-indium-gallium-selenide) startups raised the most capital, including San Jose-based SoloPower Inc. at $200 million; Hayward-based OptiSolar Inc. at $78 million; and Santa Clara-based Miasole Inc. at $35 million. German CIS (copper-indium-sulfide) provider Sulfurcell Solartechnik raised $134 million. AVA Solar in Colorado, which uses cadmium telluride technology, raised $104 million. UK-based G24 Innovations raised $30 million for its flexible organic dye thin film technology.
Monday, September 22, 2008
Want a Good Response Rate? Better Get Personal
Today, most direct marketing takes the form of push marketing. It pushes email or print collateral out to the mailboxes of prospects who have not requested it. Rather than giving prospects a chance to reach out for a product or service that meets their needs, it is based on guesses about what customers want. It's no wonder over 95 percent of junk mail and email ends up in the wastebasket. Wouldn't it make more sense to invest in marketing campaigns that focus on actual expectations and requirements?
Push marketing has response rates of one or two percent at best because most people view unsolicited mail and email as intrusive. Just about everyone ignores junk mail and spam, even when it comes from their own financial institution. In short, over 95 percent of the effort, money, time and labor that go into such materials are wasted. Worse, it actually drives prospects away. Think of it as collateral damage.
What exactly is the problem with push marketing? It is based on the assumption that all customers have the same attributes and therefore will have the same banking needs. In today's market, nothing could be further from the truth.
So how can marketing be targeted better to address the consumer as an individual rather than part of an amorphous entity? A step in the right direction is to add the recipient's name to a direct mail piece. That alone can increase response rates by over 40 percent. But an even more effective way to target marketing communications is to base them on transactional data and personal customer information stored in the bank's database. This increases response rates by over 500 percent, even in a traditional direct mail campaign.
Consider the following personalized marketing communications tools as a way to increase response rates, boost sales and encourage customers to act.
Monthly or quarterly account statements may be regulatory requirements, but they can also double as a strategic communications vehicle to engage and connect with customers. Marketing that takes the form of in-context messaging in conjunction with traditional statements has several benefits. It saves money because the mailing serves a dual purpose. Also, customers usually open and read their statements. Moreover, marketing messages included with statements are based on factual information on the recipient's requirements and preferences as evident from the statement. Marketing monologues become conversations.
Similarly, billing and other notifications specific to customers can double as marketing vehicles. New loyalty programs and even partners' cross-selling offers are less likely to be discarded when they are personalized rather than sent out en masse to everyone. More progressive banks are even considering dynamic pricing, which can now be enabled by "the last mile" in personalized customer communication as a new source of revenue.
A few progressive organizations have already created personalized web portals for customers. These portals capture and store the customer's profile and are linked to a document publishing solution, allowing customers to request information on new products and services at the click of a button. Whether content includes travel offers, high net worth programs or financial planning tools, financial institutions can send the requested information as customized pieces based on the parameters established through the portal.
Some financial institutions have linked customer analytics and event management systems to create a personalized customer communication tool. Targeted communications are triggered by events such as account activity alerts, the customer's purchase of a home or life stage events.
A prerequisite for the success of such programs is an integrated customer communications technology platform that can do it all, from database management to the design of engaging paper documents and e-mail, to web publishing, to the creation of dynamic, personalized content for marketing messages.
One of the world's largest diversified financial services firms, with operations in more than 100 countries worldwide, avoids "collateral damage" by using technology for customer communications management. The company is using e-mail to distribute correspondence that cannot be realistically sent in paper format, such as alerts or reminders about e-statement availability. In addition, it uses e-mail to drive customers to the company's website for additional service needs to decrease the need for calls to the customer service center. It generates real-time email (delivered within 30 seconds) and just-in-time email (delivered within 15 minutes) for correspondence such as confirmation email or follow-up servicing correspondence related to customer service calls. Extensive use of email has helped increase the number of customer touch points and reduced customer service costs while monthly volumes went up from 40,000 print-only letters to more than 11 million letters for distribution via print and email. The company saved more than $20 million, reducing cost per correspondence by more than 95 percent.
Personalized marketing communications not only increase response rates, they build better customer relationships. It typically costs about $300 for a bank to acquire a new customer and attrition rates range from 10 to 40 percent. Since it takes about three years to recover the cost of acquiring a new customer, keeping customers through cross-selling and up-selling of more profitable and "sticky" products is critical. Personalized customer communications open the door for further communication and establish strong relationships with customers, making these approaches far more effective than anonymous push marketing. For example, 35-40 percent of all customer attrition is related to life stage events. By sending event-triggered communications, financial services organizations can leverage these changes in customers' lives.
In addition to a flexible technology infrastructure that drives personalized customer communications, there are other prerequisites for effective customer onboarding. The most successful loyalty building marketing programs are:
Relevant. They are founded upon a clear understanding of the targeted customer segment's demographics, attributes and past relationship with the bank, if any. Never assume all customers are the same. Pinpoint a relevant message that really meets their requirements.
Consistent. It's not just about acquiring customers, but also managing them through relationship building throughout the customer lifecycle. Keep messages consistent and consider the customer's satisfaction throughout the relationship, particularly with regard to life stages that might cause a switch in institutions.
Cost-effective. The challenge for marketing departments is to keep campaigns cost-effective and show ROI. Customer communications management platforms, tools and infrastructure are a worthwhile investment because they drive more effective, personalized messages to individual customers.
Push marketing drives customers away. Personalized, customized marketing pulls them in with products and services that meet their needs. Individually targeted messages sent with statements, notifications and other regular communications are less likely to join junk mail in the virtual or real wastebasket.
The Convergence of OEM and ECM - Largest Independent ECM Vendor Open Text to Buy Captaris for $131M
Open Text has acquired Captaris a leading provider of software products that automate document-centric processes for $131M. Under the terms of the agreement, Captaris shareholders will receive cash consideration of approximately US $131 million in total, or $4.80 per share in exchange for their Captaris stock. The deal, which is expected to close by the end of the year, is another example of the on-going consolidation in the office and enterprise solutions markets.
Captaris is a provider of computer products that automate document-centric business processes. With a comprehensive suite of software, hardware and services, they help organizations gain control over many processes that include the need to integrate documents more securely and efficiently. They develop products and services for document capture, intelligent document recognition and classification, routing, workflow, document management and document delivery. Captaris has a large installed base of customers that includes many Fortune 100 companies, the majority of the Global 2000 companies, and thousands of mid-sized enterprises. The customers use Captaris products to reduce costs, comply with regulations, increase the performance and productivity of critical business processes, and leverage their IT system investments.
Captaris products and services include the following categories:
- Intelligent document capture, recognition, classification, and routing solutions that create “smart documents” and automatically deliver them to meet the collaboration and compliance needs of today’s business environment.
- Business process management software that automates both functional and vertical business processes, helps organizations maintain accountability, supports compliance initiatives and increases productivity; and
- Document management software products that target business needs for reducing paper by storing and accessing digital content throughout the information lifecycle and supporting compliance and collaboration within organizations.
This acquisition fills out the ‘Capture’ gap within Open Text’s ECM portfolio of offerings while also adding $95M to its top line putting them on track to become a billion dollar firm as the only independent ECM vendor. Today about 80% of the enterprise information consists of unstructured data stored in hard copy documents and other digital formats. Captaris’ technology will strengthen Open Text’s ECM solutions by providing another on-ramp for integrating content into our ECM solutions. Captaris’ software products let customers convert paper documents to digital content, and manage associated processes. The acquisition will also expand Open Text’s partnership offerings by creating tighter integration with Open Text's invoice management solutions that work with SAP and Oracle. Considering Open Text’s tighter integration with SAP and its fruitful channel partnership particularly in Europe, this move further cements the company’s strategic relationship with SAP. Captaris also offers business information and delivery solutions built on the Microsoft .NET framework which integrate process and automate the flow of content. Following SharePoint’s introduction, Microsoft started commoditizing the lower end of the EMC spectrum with basic content services capabilities now embedded in the MS Office bundle for the enterprise clients that need only entry-level functions, such as version control, check in/out, access control and audit trail. Open Text’s acquisition will further help enterprise clients improve their ROI on SharePoint while also providing tighter integration into Open Text platform Livelink ECM 10.
From a solutions perspective, Open Text will be able to further monetize its compliance and litigation solutions leveraging Captaris’ OEM relationships providing on-ramps (e.g. smart MFPs capturing and distributing files at a corporate legal department in preparation for discovery) to capture and digitize hard copy enterprise documents. Traditionally, compliance and risk oriented initiatives within organizations have been haphazard and fragmented. The unifying element that compounds the challenges organizations face with compliance, risk, and governance activities is the ever-exploding volume of enterprise content. Gartner expects the worldwide ECM software market will reach $4.2 billion in 2010. In 2007, worldwide ECM revenue is projected to total $2.9 billion, a 12.8 percent increase from 2006. More than half of the growth is driven by compliance and litigation related corporate investments.
This acquisition will likely displace some of Captaris’ competitors forcing them to be acquired by larger competitors; In the fax server and document delivery segment, some of their competitors are Esker, Biscom, Kofax/TOPCALL, Fenestrae, and GFI Software. Captaris already had the leading market share worldwide and this would further consolidate the market. In the capture segment where they acquired Oce’s Document technologies business, they face several more formidable competitors; In the optical character recognition (OCR) market, they go up against Nuance’s Scansoft division, ABBYY and Iris. In the intelligent document recognition (IDR) market, they compete against EMC/Captiva, Dicom/Kofax, and ReadSoft among others; these vendors provide packaged solutions. In comparison, Open Text’s acquisition will help them better compete in this segment thanks to Open Text’s size, reach and customer installed base particularly in the Global 1000 segment. Captaris’ document management solutions compete primarily in the mid-market and MFP dealer channels based on functionality and price. Their main competitors are Hyland Software (based on the OnBase product), EMC Corporation / Documentum (based on the ApplicationXtender product), Westbrook Technologies (based on the Fortis product) and Compulink Business Systems (based on the Laserfiche product). We would expect to see further consolidation among these vendors as the ECM segment is getting consolidated itself.
Another implication is that we will see the convergence of OEM market with Enterprise Content Management. Creating and maintaining OEM and strategic relationships for vendors such as Captaris is important to their success because these relationships enable them to market and distribute our products to a larger customer base than we could otherwise reach through our direct marketing efforts. Captaris’ relationship with vendors like Xerox, HP and other has helped them transform their multi-function products into intelligent office utility as an on-ramp to client’s document-intensive business processes.
Open Text, thanks to its healthy balance sheet and cash generation capacity should continue to make strategic acquisitions to fill in gaps within its Livelink platform and to increase its installed base of customers and channel relationships. This move will further boost Open Text’s strategic value to the major consolidators in the ECM. SAP and Oracle would be the two top candidates to acquire Open Text within the next 12-18 months.
Friday, August 29, 2008
What is Next for the US Office Products Industry ? Winners & Losers
Analysis:
The ongoing consolidation of US office products distribution channels appears to be finally over, or at least until a rival attempts to outbid Ricoh's apparently low-premium bid. Following Konica/Minolta's acquisition of Danka US, Xerox's acquisition of Global Imaging and Oce's buyout of Imagistics, Ricoh bought IKON, the only independent mega dealer in the US. Ricoh has emerged as one of the four industry heavy weights - in terms of brand equity, financial size, sales coverage/channel footprint and product depth & breath. The others include Xerox, Canon and HP. A long time consolidator of the industry, Ricoh's latest move constituted a MAJOR blow to Canon who lost %35 of its US business. When Xerox acquired Global Imaging Systems last year, Canon immediately dropped them. One would expect a similar move now considering long-time rivalry among Japan Inc. It becomes also very difficult to understand why Canon decided to watch Ricoh buying their channel in the US. According to industry insiders, a rep on average sells about 2-3 machines per month and this has been relatively stable over the years. Accordingly, losing feet-on-the-street of this magnitude could mean up to 300 basis point change in Canon's bottom-line. HP has lost its only viable office multi-function distribution & break/fix service arm and a sizeable revenue (about %25 of IKON’s sales) which could also hurt their long-standing sourcing relationship with Canon. In the short-run, Canon is the biggest looser but in the long run HP will be. However, this is all great news for Xerox! This will mark the end of long-term assault into its turf by HP. Xerox's field reps (at Global Imaging) have a valuable window of opportunity to aggressively target IKON-Canon customers. Having picked a much less problematic dealer chain (Global vs IKON) to acquire, Xerox can better compete against Ricoh which will have its hands full with IKON's internal restructuring efforts in addition to daunting post-merger integration tasks. Other winners include smaller players like Oce or Lexmark which will become natural candidates for acquisition. However, I am hearing that rival bidders could emerge as Ricoh seems to have paid less premium compared to similar transactions in the industry. Also, IKON inherited some scarcity value after a wave of consolidation. Apparently, one of their major shareholders was not involved in the process leading up to the sale of IKON. As a result, Canon could challenge the decision teaming up with unhappy shareholders in a defensive move and offer a much higher multiple. The board would have no choice but to respond.
Sunday, August 24, 2008
Smart Global Documents vs. Smart Indian Offshore Firms
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For India's Tech Titans, Growth Is Waning - WSJ
August 20, 2008;
NEW DELHI -- India's information-technology industry, the engine of the nation's economic resurgence, is losing steam. A decade ago, a host of Indian companies -- led by Infosys Technologies Ltd., Wipro Ltd. and Tata Consultancy Services Ltd. -- shot to global prominence by helping fix the "millennium bug" that threatened to crash many of the world's computers at the end of 1999. Often growing at 40% a year or more since, they quickly helped build a global tech-outsourcing industry that has changed how the world does business and how it views India.
Now that growth is slowing sharply. The credit crunch and spending slowdown in the U.S. are hurting the companies' biggest market, while a cheaper dollar shrinks their profits. Longer-term problems are surfacing. Competition is rising from other low-cost nations, ranging from Eastern Europe to the Philippines and Vietnam. And India's own success has raised labor expenses, cutting into the companies' low-cost advantage just as their revenue growth is slowing.
Infosys expanded its corps of software engineers by one-third between 2006 and 2007, adding 15,000 people. Its average salaries are rising 12% a year, and increasingly high turnover is forcing the company to spend more on training. Growth in profits fell to 18% in the most recent fiscal year, which ended March 31, compared with 56% the previous fiscal year. Tata Consultancy Services posted just a 4.9% increase in net profit in its latest quarter, compared with 37% in the same period a year earlier. Wipro's earnings growth slowed similarly, to 11.6% in the fiscal year ended March 30, down from 42.3% in the previous year.
The Indian tech industry's trade group, Nasscom, projects revenue to grow at 20% to 25% in coming years -- still heady by the standards of most industries, but barely half the recent rate. "The first round of growth is always easier," Nasscom President Som Mittal said last month. "The next 10 years is going to be different."
To compensate, India's outsourcing giants are trying to pivot into more ambitious -- and in some cases unfamiliar -- enterprises. In a project called "ShoppingTrip360," a team of Infosys engineers is pitching retailers on a wireless-equipped shopping cart that charts the most efficient path through a store based on a consumer's shopping list. Wipro won a contract to help design a water-flow system for the toilets in Airbus's new A380 superjumbo jet. Tata Consultancy Services has set up an "Innovation Lab" in Chennai where, for instance, engineers are trying to develop software that airlines could use to improve their customer service; the idea came from TCS executives' own airline peeves.
The efforts haven't yet been much help to the bottom line. Basic outsourcing remains the overwhelming share of their business -- 84% in the past fiscal year, according to Nasscom. But the revenues of Wipro's product-development unit rose by almost 50% in the past two years combined, to $686 million last year. The Indian tech firms are hoping they can leverage their ties to companies around the world to sell them on new ventures.
"We're in a challenging environment for growth," said S. Ramadorai, chief executive at TCS, India's largest technology company by sales, in an interview in Mumbai. The next opportunities won't be based merely on low-cost labor, he said, but on "innovation and strategy."
The industry's predicament is a rare setback for India's greatest business success story. In some recent years, technology companies have combined to hire more than 300,000 workers to keep up with soaring demand, as large Western companies sought to cut costs by sending back-office work overseas.
The change comes as India's broader economy already is slowing. Economists estimate that growth in gross domestic product will ease to between 7% and 7.5% this fiscal year, after five years of averaging almost 9% annually. The Indian economy depends heavily on service industries for expansion, and technology -- though a small piece of the overall pie -- has been India's fastest-growing sector for several years. It accounted for 4.5% of India's GDP in the year ended March 31, up from 2.5% in 2004. In contrast, agriculture, India's staple, has declined to 17% of GDP from 20% during that period.
The tech boom has especially transformed the southern cities of Bangalore and Hyderabad. American and European architects designed steel-and-glass high rises surrounded by manicured, palm-lined campuses, as a rural, developing region evolved into a driver of the globalization of the technology industry.
Global Phenomenon
Of course, tech outsourcing as a global phenomenon remains relatively new, and India's giants are still well-placed to gain a big share of new work. About 11% of the $1.7 trillion spent on technology world-wide last year was sent to tech outsourcers, according to the industry. The same companies also do outsourcing of back-office operations such as payroll processing, as well as call centers, though recent growth there also is reduced. "There is so much of outsourcing yet to be done," said K.R. Lakshminarayana, chief strategy officer at the Wipro Technologies division. "There is enough head space for all of us."
But snags started appearing two years ago. India's rupee, the currency in which the industry's costs are measured, began appreciating against the dollar. Most of the companies' sales were in dollars, so their revenues were worth relatively less when translated back to rupees. Between June 2006 and earlier this year, the rupee rose 16.4% against the dollar to 39.3 rupees from 47, though it has since given back about half of that gain.
Investment from private-equity firms and venture capitalists in India's smaller technology companies also started drying up, as investors became jittery over a stronger rupee and the U.S. slowdown. In the first half of 2008, such investments fell by 63% from the same period a year earlier, to $151 million, according to Chennai-based research firm Venture Intelligence.
The industry's frantic hiring drained the pool of skilled workers, drove up wages and increased turnover as employees job-hopped for more pay. The attrition rate for employees at Infosys was 13.7%, up from 11.2% in 2006.
To replenish the pool of recruits, India's tech giants are spending more on training and on educational initiatives at Indian universities, efforts that add to their expenses. Infosys sends trainers to nearly 500 colleges to teach engineering-school instructors how to foster discussion and collaboration in classes and rely less on rote memorization. TCS this year is training 1,500 college graduates who studied science to learn computer programming and communication skills, at a center it built for that purpose in Chennai.
The industry's biggest blow came last summer, when the meltdown in the U.S. subprime-mortgage industry and ensuing credit crisis froze new business from global banks and other financial institutions, which bring in close to half of the industry's revenues.
Earlier this year, TCS said two Wall Street banking clients had put a freeze on their tech spending until they could cope with the fallout. The Indian company now says that it expects sales in the banking sector to improve in the coming quarters. But other banks are asking for price reductions.
India's wage inflation, currency appreciation and high labor turnover have also started pushing tech work to smaller competitors in Eastern Europe and the Philippines that don't have the same problems. For example, Siemens AG has moved its in-house customer-service centers away from India. Over the past two years, Siemens has hired 1,500 workers to staff a customer center in Manila, where the company says the spoken English is closer to the American dialect of its U.S. customers. In the Philippines, Siemens says it has a 2.5% monthly turnover rate, compared with the 20% turnover it had in its India call center.
"India is still one place where a cost benefit is possible, but not always as much as it was before," says William McNamara, head of IT strategy for the company's North American office.
All that has added pressure on India's technology companies to find other sources of sales. In a departure from the tech companies' usual reliance on tech services provided at the behest of a customer, they are increasingly developing products on their own, then trying to pitch them to customers.
Engineers at Wipro in Bangalore are building a set-top box for digital-television subscribers that they hope to sell to cable companies. They started working on it two years ago after the U.S. Congress passed legislation mandating a move to digital cable by 2009. Now, the company is shopping its set-top box technology to American cable companies, targeting its cheaper, off-the-shelf box to smaller cable providers that may not want to pay for a fully customized product.
Infosys engineers have designed a cosmetics mirror that turns into an information screen when a radio-tagged lipstick is brought close it, to recommend coordinating colors and products to customers. They got the idea while doing work on inventory-maintenance applications for retailers in Singapore and elsewhere in Southeast Asia, where they learned that Asian shoppers don't trust salespeople to give them advice as much as computers, which are seen as more objective. The company has two pilot projects running in the Asia-Pacific region and is in talks with an American retailer to put some of the gadgets in U.S. stores.
They also are working on "smart shelves" that automatically track which piles of shirts customers have picked up the most often. That way, retailers know when their shirts attract a lot of attention but, for some reason, don't get bought. The company showcases the technologies to interested retailers at a mock apparel store on the company's campus in Bangalore, complete with a working checkout counter and muted classical music playing in the background.
The 'Innovation Lab'
At TCS's "Innovation Lab," the company's top programmers and engineers use experience gathered from working in certain industries to come up with products and services they hope to sell to clients. They've used information collected from TCS's airline clients to analyze passenger complaints and design marketing campaigns aimed at defusing them. One gadget: a radio-tagged pass that passengers only need to swipe at a terminal to check in, instead of manually typing in last names or confirmation codes. They've also developed software for handheld computers that lets the flight staff know frequent flyers' preferences -- if one needs a blindfold to sleep, for example.
Another group at TCS has hired life scientists and pharmacologists to do data analysis on clinical drug trials for pharmaceutical companies pursuing drug approvals from the Food and Drug Administration. They have secured contracts with GlaxoSmithKline PLC and Eli Lilly & Co., and the group is preparing to write applications to the FDA on the companies' behalf.
The tech companies also have been expanding into consulting, where they say revenue per employee is higher than in outsourcing. But they've struggled to break into the market, which is dominated by well-known names such as International Business Machines Corp. and Accenture Ltd., finding many of their own clients prefer to take advice from those companies rather than the Indian ones better known for their outsourcing. In the year ended March 30, TCS's consulting business contributed 3.4% to the company's total revenue -- the same as in the previous fiscal year.
India itself is emerging as a promising market after years when the companies generally sniffed at doing local work in favor of more lucrative and prestigious overseas assignments. One of the biggest recent orders in the industry was a $400 million government contract to build the technology to support India's new electronic passports, which have electronic chips to store information and make them harder to forge. After a 12-month bidding process, TCS won. The company declined to comment on the project, which is yet to be announced officially.
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