Canon to Acquire I.R.I.S.

Canon, working through its subsidiary Canon Europe, has made a bid to acquire Belgium capture ISV and systems integrator I.R.I.S. The two companies have been partners since Feb. 2009, when Canon Europe became a reseller of  I.R.I.S. products. A few months later, Canon followed-up by buying a 17% stake in I.R.I.S.

I.R.I.S. is probably best known in North America for its OCR/ICR software. Several big-name companies like Adobe, HP, and Evernote license I.R.I.S.'s technology in this area.

 I.R.I.S. also has a batch capture product - which has its roots in software it formerly licensed to Kodak through an OEM agreement (Kodak Capture, the predecessor to Kodak's current Capture Pro software). In 2008, I.R.I.S. acquired German IDR ISV Docutec and markets a document classification and extraction product - IRISXtract, based on the Docutec technology. I.R.I.S recently ramped up its North American efforts around Xtract, which includes licensing Xtract to Salumatics, a Canadian outsourcing firm, that is using the technology to capture healthcare patient records.

 I.R.I.S. has several other software products and some hardware, like mobile scanners and a pen scanner, as well. I.R.I.S. also has a ECM systems integration/professional services business that mainly operates in the Benelux region. This integration business has historically accounted for more than half the company's revenue.

For 2011, I.R.I.S. reported revenue roughly the equivalent of $158 million, but it also went through a reorganization last year. For the first half of 2012, I.R.I.S. revenue was down 33% to around $58 million, but its EDITDA (cash flow from operations) was actually improved over 2011.

Commented, Denis Hermesse, CFO I.R.I.S. Group, “We have seen a shift in our revenue mix with an increase in revenue from license, maintenance and services (including system performance and remote monitoring) and less hardware sales with low margin."

The deal
The offer Canon has made is for EUR 44.50 per share, or the equivalent of $92 million for the remaining 83% of I.R.I.S. This represents a 50% premium over what I.R.I.S. shares were trading for, before trading was suspended as the deal works itself through. It values I.R.I.S. at around $111 million, which is considerably less than the $184 million valuation related to Canon's $31 million investment in 2009.

In 2009, I.R.I.S. was coming off a 2008 in which it reported an EBITDA of Euro 9 million on revenue of Euro 108 million. Based on the first half, 2011 EDITDA projects to Euro 7 million on Euro 85 million.

Commented I.R.I.S. CEO Pierre de Muelenaere in a press release, “We are very pleased to have reached this important milestone for I.R.I.S. Group, and proud that Canon intends to bring our company within the Canon group. The entire board of I.R.I.S. Group fully supports this bid and we are committed to making this transition a success, which we believe will be to the benefit of our customers and all our stakeholders.”

For Canon, the move represents part of the overall trend of MFP manufacturers moving more toward software and solutions. Commented Rokus van Iperen, President & CEO, Canon EMEA, "Canon has identified business solutions and professional services as important focus areas for future growth and we believe this investment will bring long term opportunities to build on our success in the solutions and consultancy businesses to date. We will be working closely with I.R.I.S. Group, as a stand-alone company, to deliver more advanced solutions and services and greater customer value.”

For the record, "More acquisitions of Capture/DM/BPM ISVs by Hardware Vendors," was one of the six predictions for 2012-2013 I made at the Harvey Spencer Associated Capture Conference two weeks ago.