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With $1B Acquisition, OpenText Swimming for Big B2B Integration Fish

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We now know OpenText’s Information Exchange portfolio was beefed up when it bought GXS for $1 billion this month. But how much better did it get? Who is OpenText going after — and where are they now in this space?

First things first — this is a serious acquisition for the now 8,200-employee Waterloo, Ontario-based enterprise information management software provider. Its investment into GXS represents about a third of the total price for nearly 50 previous acquisitions during the past 20 years.  

The move is so significant, one industry analyst said, that she now puts OpenText ahead of IBM and TIBCO, two of its major competitors in the B2B integration services space. TIBCO offers “B2B Next,” and IBM has "Sterling B2B Integrator."

"OpenText’s Information Exchange portfolio was somewhat limited in its capabilities, so this acquisition will greatly increase its capabilities, putting it ahead of IBM and TIBCO," Sue Clarke, senior analyst at Ovum Research, told CMSWire.

OpenText's Big Vision

The reasoning for the acquisition, simply, was all in the numbers, Clarke said.

"I believe one of the main drivers for the acquisition will have been an immediate increase in market share in the B2B integration space, with the combined cloud managing over 16 billion transactions per year, approximately 600,000 trading partners and 40,000 customers, according to OpenText,” Clarke told CMSWire. “With 2,889 employees in 20 countries with 40 locations serving customers in 60 countries, GXS is a big company with a global presence. The buy will have a huge impact on OpenText’s market share in this area.”

So where will OpenText go with the new B2B integration capabilities? Try and upsell GXS customers to ECM Suite components, Clarke said.

“And I wouldn’t be surprised to see OpenText creating solutions combining elements of B2B integration services with parts of the ECM Suite,” she said. “For example catalog creation and management or its web experience management capabilities for building websites.”

Catching Up to Giants?

IBM has had this functionality for years, and now OpenText is gearing up to compete.

“I think it's more that OpenText has a basic problem in that it is the last remaining  independent major ECM player, and it is much smaller than the other Tier 1 players, who are all infrastructure vendors with vast portfolios of products that can be integrated to provide additional capabilities,” Clarke said. “These are EMC, HP Autonomy, IBM, Oracle, and, to a certain extent, Microsoft.”

OpenText also faces competition from open source vendors such as Alfresco, who are receiving support from the government sector in countries such as the UK. 

“OpenText needs to keep growing itself,” Clarke said, “in order to remain a force against these large vendors, who themselves keep expanding their portfolios. It also needs to expand the range of products it offers, hence the move away from a traditional ECM product.”

Who’s Next?

Clarke wouldn’t be surprised to see other organizations make similar acquisition moves.

EMC, she said, is normally the first vendor to make acquisitions in a new area. 

“IBM already has capabilities in this area, but it may boost the capabilities of its products by integrating capabilities from other parts of its portfolios, such as its translation service integration,” Clarke added. “Following the acquisition of Autonomy by HP, and the control of HP assets in the ECM space moving to Autonomy, there could be a move in this area from HP Autonomy.”

Acquisition Strategy

When OpenText CEO Mark Barrenechea says acquisitions are core to the company’s business model, he means it.

Over the past 20 years, OpenText has made 48 acquisitions valued at $3.4 billion.

They’re not done.

In a conference call with investors last week to discuss Fiscal Year 2014 Q2 earnings, Barrenechea said the company estimates it will spend another $3 billion in acquisitions over the next five years.

“Over the next five years, while working within our current leverage ratios and cash availability, we conservatively estimate $3 billion in acquisition capacity,” the OpenText CEO said.

GXS’s Arrival

About a third of that acquisition investment figure from the last 20 years went into OpenText’s $1 billion grab of GXS. The deal was completed this month.

OpenText is essentially combining its Information Exchange portfolio with GXS's cloud-based business-to-business integration services and managed services.

OpenText’s workforce grew 60 percent with the addition of the approximate 3,000 GXS employees. For OpenText, this is another addition to its Information Exchange Suite — it now has 700 customers strong in the OpenText cloud — after its acquisitions of Captaris and EasyLink. GXS had revenues of $488 million in calendar year 2012 (profiting $146M).

 

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