Irvine, Calif.-based Kofax is for sale and it may have found a buyer. 

Company CEO Reynolds Bish revealed the news earlier this week at Inspire 2017, the enterprise content management (ECM) software provider's annual user conference. An announcement should be coming in the next few weeks, Bish told the crowd at Nashville’s Music City Center.

The timing may be completely coincidental, but Bish said something very similar last year at Inspire 2016. A few weeks later, China's Apex Technology, which makes ink cartridge chips, acquired Lexmark International, which not only makes printers but also owns Kofax. When Apex purchased Lexmark, the company indicated that Lexmark's software business (called Kofax from here on out) was up for sale.

At $1.5 Billion, Would the Price Be Right? 

If a report published by Reuters on Tuesday is right, then Hyland Software, developer of OnBase ECM, is nearing a deal to buy Kofax. Reuters said the deal could be worth as much as $1.5 billion. That’s just a little less than OpenText paid for Dell EMC's Enterprise Content Management division (ECD), which includes Documentum.

Though the $1.5 billion price tag would be "expensive" according to several analysts CMSWire spoke with, they also pointed out that Hyland might be able to pull the acquisition off because it is owned by private equity firm Thoma Bravo, potentially giving Hyland easier access to capital. Our analyst sources had a few other ideas of what might happen — more on those later.

So Many Acquisitions, So Little Time

The bigger question in analysts' heads was whether such an acquisition would be smart for Hyland. They almost universally regard Hyland as a well-run, well-mannered company, whereas Lexmark/Kofax is a bit of a mess.

"Lexmark's software business is made up of a bunch of acquired firms and though they have some smart people, by all accounts it is not a particularly happy place, as its future and leadership has been in question for some time," ECM industry analyst Alan Pelz-Sharpe of Deep Analysis told CMSWire.

It is worth noting that Lexmark has made at least nine acquisitions since 2010, including Perceptive Software, ReadSoft, Brainware, Saperion AG and Kofax, among others. They are now all loosely bundled under the Kofax umbrella. Marko Sillanpaa of Big Men on Content noted that most people still refer to Perceptive Software as Perceptive, meaning that the diverse acquisitions have yet to be integrated in the eyes of customers — or even analysts — under the Kofax name.

Learning Opportunities

For Better or Worse?

It seems that the Hyland/Kofax deal could create a similar situation or even make things worse. "All this [deal] will do is leave the combined companies with two ECM platforms and three scanning platforms to integrate," Sillanpaa told CMSWire.

Gartner, in its 2015 Magic Quadrant report for ECM, cautioned that Lexmark's software business might be fragmented due to all the acquisitions. In other words, one Kofax solution might not mesh well with the next without some extra effort.

But Terry Frazier, research director for content and digital media technologies at analyst firm IDC, told CMSWire that the deal could make some sense, given that there is some overlap in the companies’ portfolios. That overlap could allow Kofax to bring Hyland into vertical markets where it doesn't yet have a strong play, and give Hyland the benefit of Kofax’s analytics capabilities.

For Richer or Poorer?

That being said, both Frazier and Pelz-Sharpe questioned whether it would be Hyland buying Kofax or Thoma Bravo buying Kofax. That distinction becomes relevant because even though Hyland just came off an extremely strong year, ending 2016 with 17 percent revenue growth, the Kofax buy would still weigh heavily on its bottom line.

On the other hand, if Thoma Bravo acquires Kofax, it could leverage Hyland's expertise to polish up its disparate parts before selling off anything Hyland doesn't want.

"[It’s] not quite asset stripping, but the parts of Lexmark software may realistically be more valuable than the whole," noted Pelz-Sharpe.