Feature
Open Text announced their plans to acquire Vignette (news, site) just yesterday morning. The reported deal size was about US$ 310 million -- a tidy sum for a content management systems vendor that has been struggling a bit as of late, with software license revenue in steep decline. Here are some insights as to why the ECM Canadians fell for the WCM Texans.
Open Text on the Acquisition Plan
While many in the enterprise content management industry seem a bit baffled by this decision, Open Text's President and CEO, John Shackleton believes it was a good choice.
Flattering Records Management & Analytics Features
He indicated that Vignette is one of the last big players in the market and they saw a number of synergies with the web content management assets that the Vignette deal brings them. Along with sharing a number of high profile brands, Shackleton also indicated that Vignette's records management expertise and their analytics capabilities had caught Open Text's eye.
Typical Up/Cross-Sell Synergies
Open Text sees the ability to cross-sell and up-sell to Vignette clients (those they share and those they don't), helping to streamline business processes on both the back and front-end. Along with providing solutions that deliver rapid ROI, Open Text wants to provide solutions that streamline the front office. They believe they have found it in Vignette.
But Was it Rushed?
Asked if they were rushing this acquisition considering the Captaris acquisition still isn't completed and the Vizible acquisition is still being finalized, Shackleton said it was the "right time and the right price". He compared the Vignette acquisition to the Hummingbird acquisition saying they -- Vignette and Open Text -- have similar products with some overlap but are in different markets.
Regardless, as our readers know, merging sizable, similar operations is never easy. Taking on three of these multi-headed beasts at at time strikes us a rather brave.
A Smart Move for Vignette?
In an official statement, Vignette CEO and President Mike Aviles obviously thinks this is a good thing for the Austin, Texas-based company. He points to Vignette's deep expertise in web content management, their strong customer base, a touch dwindling as it is, and their global distribution capabilities as big selling points.
What he also says is that Vignette will benefit from having a strong enterprise content management solution portfolio behind them as well as the support system they have been letting slide.
In 2008 Open Text (OTEX) did about US$ 725 million revenue, with a net income of US$ 53 million or 7.3%. In the same year Vignette (VIGN) did US$ 128 million in revenue with a net loss of US$ 6.28 million.
So from the financial perspective, the simple answer is "yes", Vignette has found the escape hatch. We think the stockholders will be pleased. Wall Street has punished OTEX while rewarding VIGN since the deal has been announced.
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Vignette customers on the other hand, may have more to worry about. For the products that live on, this is good news. For those upon which the sun will set, it may be high time to send out the scouts.
The Pundits Weigh-in
Forrester analyst Steven Powers thinks the move may be smart even though Open Text already has a Web CMS solution in RedDot -- recently re-branded as Open Text Web Solutions -- "While Open Text’s current WCM product of choice (the former RedDot) has proven solid, particularly when compared to those of other ECM vendors, it doesn’t have the same demonstrated track record at the enterprise level as Vignette does."
CMS Watch analyst Kas Thomas cast some dispersion on the move saying "Why would Open Text, a $725 million per year software giant (with a diverse product catalog, but best known for its wide collection of ECM products) want to risk its respectable 9% operating margin by acquiring a competitor with negative profitability and a rapidly dwindling stream of license revenues?"
Other analysts were more optimistic. Quoted in a Wall Street Journal article, Hochfeld Investment's Martin Schutz saw a historical pattern in Open Text's acquisition -- buying cheap and cutting costs while maintaining revenue streams. He believes Open Text can "service Vignette's customers at a far cheaper cost than Vignette did".
Other analysts pointed to Vignettes US$ 143 million in cash and short-term investments as a nice deal sweetner.
What to Know More?
Don't we all. But as much as we all know that Open Text has a plan and a roadmap ready and waiting, they aren't going to spill the beans until the Vignette shareholders seal the deal by giving their approval.
Until that time, we watch, we wait, we speculate. Stay tuned here -- we'll share as we know more.
