Wednesday, August 20, 2014

Nuance Numbers Reveal Acquisition Motive

Nuance's Document Imaging division revenue was down significantly in its fiscal Q3 2014. For the three months ended June 30, the Burlington, MA-based ISV reported $52.4M in revenue for the division, a drop of 16% compared to last year's Q3 results. According to Nuance's prepared remarks associated with its financials release (which came out on Aug. 11), " Bookings strength was supported by two new partnership extensions with HP and Lexmark. Growth from these partnerships was tempered by weakness in the MFP scan business."

This would explain Nuance's decision to acquire Notable Solutions, Inc. last quarter, which was its main independent competitor in the MFP scanning market.

Monday, August 18, 2014

How Google's Acquisition of JetPac is Relevant to You

One of the sessions at the upcoming Harvey Spencer Associates Capture Conference is entitled "Photo and Video Understanding: Augmented reality used in transactional information." It is being presented by (and this is a pretty long title, so get ready) Christopher Surdak, Global Subject Matter Expert, Information Governance, eDiscovery and Analytics, HP Autonomy. Anyhow, Harvey gave me brief explanation of why he felt this is relevant to his audience of mainly capture ISVs.

"[Surdak] is going to talk about some things I think are exciting," said the principal of HSA. "This includes the ability to lift up the hood for your Nissan, take a picture, and have an application figure out what engine parts you need and then take you to a list where you can order them. The ability to place the order and have it fulfilled is what creates the transaction. The subject matter is basically about capturing photos and video, instead of a static document, to trigger a transactions. Insurance claims adjustment is another example where this is relevant."

I was thinking about this session (HSA Capture is being held Sept. 3-4 at the Glen Cove Mansion on Long Island), this morning when I read that Google had acquired image recognition start-up JetPac. JetPac apparently makes technology that can analyze facial expressions on sites like Instagram and use those analytics to make recommendations about the best places to go (for example, best bars) in a geographical area. This is interesting because it also combines another topic that was covered at HSA last year, which was "sentiment analysis." Last year Brian Garr of LinguaSys, presented on how his company analyzed the sentiment expressed in texts on social media sites and is able to let businesses know what people are saying about them. When you think about combining the power of JetPac and LiguaSys and introducing it into current capture applications, the possibilities are fairly powerful. Let's just say it could make Smart Process Applications even smarter.

As we wrote in a recent article in our premium edition of DIR, the capture market sure has come a long way in 10 years.

Thursday, August 14, 2014

A Look at the New Face of ECM

Smart Process Applications (SPAs), iBPMS, and dynamic case management are all relatively new terms that have come about the describe a next generation ECM solution - based on what we have historically called workflow. Like workflow, they are all designed to get the right information to the right people.

From what I can tell, there are two key differences in definitions of these new terms and what we have traditionally called workflow:
  1. timeliness: Not that workflow didn't always tout improvements in timeliness as one of its benefits, but it seems the goal now, as opposed to just improving processing times, is to provide near instantaneous turnarounds. For example, if I am applying for a loan, leveraging one of these new technology sets, can I get instantaneous feedback on whether I qualify or not, as opposed to waiting a week?
  2. multi-channel capture: Instead of starting a process with a paper or even an e-form and combining that with some supporting documentation, these newly defined ECM processes can be initiated and fed through not only paper and e-forms, but also social media, mobile devices, data from other systems, and more.
These two factors bring these next-generation ECM systems into direct contact with what Geoffrey Moore has defined as "systems of engagement" and what, on some level at least, I understand to be Customer Experience Management (CEM) systems. I have to admit I was wholly unfamiliar with the acronym "CEM" until recently, when it showed up on the agenda for the upcoming Harvey Spencer Associates Capture Conference.Then, earlier this week, I received an offer from an industry pundit who wanted to contribute a piece on CEM meeting case management. So, this seems like this is something we are going to be hearing more about in the future.

I'm going to now try and put all the pieces of the puzzle together:
  1. Looking to communicate with an organization, you have customers, partners, vendors, analysts/media and some others.
  2.  These communicators interact with the organization through a number of channels, including Web sites, e-forms, paper documents, social media, call centers, and mobile devices.
  3. All communications require a response, and the best way to manage that response is through a structured workflow - fed by a multi-channel capture system.
  4. This workflow must be two-way street. ECM has always had the ability to connect with back-end systems, but now, it must be able to take information from these back-end systems (ERP, CRM, etc.) and feed it back to the communicators through multiple channels. This loop must be maintained until a transaction is completed.
  5. The ECM system must also act as a system of record and catalog all information and documentation related to a transaction- while it's going on, as well as when it is completed. That record must remain open and interactive to be able to incorporate additions to the transaction or future related transactions.
  6. There is also some stuff that can be done with predictive analysis of processes to help automate this loop.
Anyhow, that's my understanding of this new wave of ECM - whatever you want call it. I think it's also important to note that the key components continue to be capture, workflow, and records management, albeit in an evolved form. Your thoughts?

Tuesday, August 05, 2014

Lexmark, Hyland Still at it for ReadSoft

We had heard rumors that Lexmark executives have been saying that they will not be outbid for ReadSoft, but Hyland Software sure is trying. Yesterday, the Cleveland-based ECM ISV attempted to trump Lexmark's offer for the Swedish capture vendor for a third time. This time,  Hyland topped Lexmark's bid by 10%, offering the equivalent of $246M for ReadSoft. This was significant because it showed that Hyland was once again willing to play by Lexmark's rules.

If you remember, Hyland's previous bid offered only a 4.7% premium over Lexmark's previous bid - even though ReadSoft's board had stipulated that it would only consider other bids if they were at least 7% higher than Lexmark's previous bid. Hyland felt they had worked around this stipulation by acquiring an 11% stake in ReadSoft, which meant that another provision of the Lexmark bid (that it acquire at least 90% of the outstanding shares) could not be met. Lexmark countered by topping Hyland's offer (and allowing for the 90% provision to be waved).

Well, Hyland was quiet for awhile and it seemed like the matter was done - even though I have always been of the opinion that ReadSoft would provide a bigger strategic boost for Hyland than it would for Lexmark. After all, Lexmark already has the Brainware product line that clearly competes with ReadSoft in the invoice capture space. Yes, Hyland has AnyDoc, but from my perspective, Lexmark has invested a lot more in Brainware (including a much higher acquisition price) than Hyland has in AnyDoc. There are other reasons as well. (Here are some of Hyland's reasons why they think ReadSoft is a good fit.)

But, on the other side, Lexmark is a profitable multi-billion dollar company that has deeper pockets than Hyland-which does a few hundred million in annual revenue. And leveraging those resources, Lexmark has quickly countered Hyland's latest bid, if only by less than 1%.  The bottom line is that ReadSoft's actions, if not their words (well maybe some of their words too) have made it clear that they would prefer to be acquired by Lexmark, but you have to give Hyland credit for their continued efforts. Plus, they have helped drive up the price of ReadSoft to a much more respectable 2.1x revenue than Lexmark's initial bid, which was worth slightly more than 1.5x ReadSoft's 2013 revenue of $117M.

And it's my opinion that Hyland is not done yet. They've known they were behind the 8-ball from the beginning and yet continue to put effort into making bids. Maybe they are just trying to drive up the price to weaken their competitor - Lexmark's Perceptive Software. But, then again, maybe they have some legal action plan, because it doesn't really seem fair that Hyland has to make a bid at least 7% higher for ReadSoft's board to consider it, and then Lexmark's can just come in with a nominal raise on Hyland's bid and have the ReadSoft board automatically give its blessing. But then again this isn't poker, which apparently has more rules than the  M&A game. Anyhow, it's my opinion that Hyland may have an ace up its sleeve, that it is waiting to play.

Tuesday, July 15, 2014

Nuance Buys Notable Solutions

Nuance has acquired its primary competitor in the MFP capture space - Notable Solutions, Inc. Burlington, MA-based Nuance, which is currently best known to the world at large as the unnamed developer of the voice recognition technology behind Apple's Siri, has made a move to beef up its Document Imaging Division. Nuance is actually one of the leaders in our market, with $250M in annual Document Imaging Division revenue (although that represents less than 15% of Nuance's overall revenue). The acquisition of Notable Solutions brings about a consolidation of the leaders in the document capture software for MFP space.

Notable Solutions (historically known as NSi) began life in this market as an HP partner, with its AutoStore software primarily utilized in conjunction with HP's Digital Sender, at one time a very popular network scanner. But, after its exclusivity contract expired, Notable Solutions branched out to work with other MFP vendors. Today, Ricoh is its largest partner and Notable's Web site lists integrations with devices from more than a half dozen vendors.

Historically, Nuance's eCopy has been the leader in the market for MFP capture software from a third-party vendor, but in recent years, it seems Notable has been making inroads. "I think the acquisition of Notable Solutions dovetails nicely with Nuance's eCopy business," said Harvey Spencer, of Harvey Spencer Associates, an analyst firm which covers the capture market. "I never really felt the two companies competed. They are not really in the same market.

"eCopy's technology has historically been primarily aimed at the SMB. It's a turnkey system focused on cost controls, scanning and storing, and scanning to e-mail. Notable Solutions has been much more up market. It's more of an enterprise solution, while eCopy is a box solution. This acquisition broadens Nuance's addressable market quite dramatically."

I'm not sure that Nuance's marketing people would agree with Spencer's characterization of eCopy, as even before it was acquired, eCopy was trying to move its product upstream--to ward off infringement by the copier vendors themselves, who continue to include more scanning technology with their devices. That said, Notable Solutions always had a bit of a different vision than eCopy. While eCopy focused on scan-enabling devices, Notable always focused on connecting devices to a server where business processes were executed--typically utilizing items scanned at the copier.

There is no doubt however, that the two companies considered themselves competitive. In late 2013, in fact, Notable acquired Barr Systems to give it a complementary print management offering that enabled it to better compete against Nuance's eCopy-Equitrac combo. Notable also further diversified itself with the introduction of a mobile app that includes not only capture capabilities but also features like e-forms and secure print.

Concluded Spencer, "This acquisition shows that Nuance is investing in its document imaging business. Traditionally many people have looked at imaging as something that Nuance uses to fund other stuff. This acquisition is good news because it shows a commitment to this market."

By the way, it's unclear why Nuance has chosen not to publicly announce this deal, but it is not unprecedented. A year and a half ago, Nuance bought print management ISV Copitrak, a deal it also kept fairly quiet, at least initially. And while Copitrak was complementary to Nuance's previous acquisition of Equitrac, Notable Solutions, which is based in Rockville, MD, is complementary to Nuance's eCopy acquisition, which was completed in 2009.

Indications are that Nuance will be doing a briefing at some point following the announcement of its fiscal Q3 (ended June 30) results. For now, from what we understand, it remains business as usual at Notable Solutions.

Monday, July 14, 2014

Despite Efforts, Kofax Still Over-reliant on Big Ticket Sales

Following the tried and true PR strategy of announcing bad news on a Friday, at the end of last week, Kofax announced preliminary fiscal 2014 (year-end June 30) numbers, "which reflect software license revenue, total revenues and adjusted EBITDA levels below the guidance previously provided to the financial community." For the year, Kofax reported that total revenue will fall between $287.5 and $290.5M, which would represent an 8% gain over Kofax's fiscal 2013, but also a disappointing Q4.

By our calculations, this means fiscal Kofax's Q4 2014 revenue would come in at around $72M, which would represent a drop of approximately 7.5% from the previous year's Q4. This is very disappointing for a company that through nine months was 11.7% ahead of its 2013 pace. Kofax CEO Reynolds Bish blamed the shortfall on some large deals that fell through. On a positive note, he indicated the bulk of those deals will close very soon.

"Kofax is very disappointed with the results," Bish said on a conference call with financial analysts. "The shortfall can be primarily attributed to several seven figure software licensing transactions that slipped into future quarters. We believe we will close these deals in the first and second quarter of fiscal 2015. We expect to close $3M of sales in the next week and another $1.5M in the next two weeks."

Bish blamed Kofax's continuing reliance on seven figure deals for problems--something which Kofax has attempted to address be realigning its sales force over the past year. "In the fourth quarter, we are especially subject to this sort of result," he said. "We did increase significantly the number of six-figure deals we closed in the fourth quarter, but we only closed two seven-figure deals."

Bish said all the deals that slipped were in Europe and  North America and involved Kofax's core capture technology. "Core capture still makes up more than 70% of our sales and accounts for many of our large deals," he said. "So, that is naturally what are larger deals that slip are going to involve. I don't see any core weakness in the market, or change in the competitive environment, or increased pricing pressure. However, we are seeing procurement processes take longer.

Bish indicated that sales of Kofax TA 7 smart processing application platform are gradually ramping up. Bish added that he will issue guidance in September when Kofax publishes its official year-end results and doesn't expect any changes to the long-term numbers.

Thursday, July 10, 2014

Hyland Feels It has Voided Lexmark's Current Offer for ReadSoft

Lexmark's original offer for ReadSoft includes the following statement: "Completion of the Offer is conditional upon:
1. the Offer being accepted to such an extent that Lexmark International Technology becomes the owner of shares representing more than 90% of the shares in ReadSoft."

Which is why Hyland made such a big deal out of the fact that prior to making their new offer, it had acquired almost 11% of ReadSoft's shares. I recently caught up with Lars Wahlström, who is based in Sweden and advising Hyland on its bid for ReadSoft.

If you remember, there was also a provision in the Lexmark bid that said that the ReadSoft board could not consider another offer unless it was 7% higher than the Lexmark offer, which Hyland tried once. Hyland is now of the opinion that ReadSoft will have to respond to their new bid, even though its only 4.7% higher than Lexmark's second bid- because as Hyland is considered, Lexmark's offer should now be off the table due to the 90% rule.

Hyland's official offer document is due to come out on Monday. We expect to hear more after that, from ReadSoft, Lexmark, or both.