Monday, May 19, 2014

Follow-up on Health of Capture Market Article

As you can imagine, at last week's ReadSoft Conference, I received quite a bit a bit of feedback on the article I ran in our last premium issue (May 9) asking the question "Is the Capture Market in Trouble?"  Basically, the article asked the question if in light of Lexmark's recent offer to acquire ReadSoft, for approximately 1.5x revenue, coupled with Kofax's recent fiscal Q3 quarterly report (for 3 months ending March 31) - which included a YOY decline in sales of core capture products - might indicate that the document capture market had lost some of its luster.

Thankfully, Top Image Systems, although significantly smaller than Kofax and ReadSoft, recently reported numbers that are a positive sign for the industry. Highlights include
  • 19% increase YOY in total revenue to $8.1M
  • license revenue growth of 43%
  • growth in all regions, including 100% growth in the Americas were revenue reached $1M
  • almost .5M in SaaS sales, which led to a 36% YOY growth in recurring revenue (COO Michael Schraeder from Seeking Alpha transcript of financials conference call on the SaaS revenue: "This amount will be paid again regularly over the next 10 quarters dealing up with solid growing base of returning revenues. The total license revenue of these contracts is equivalent to approximately $4.4.")
  • projected double-digit revenue growth for 2014

TIS also raised $13.7M in capital during the quarter through a "public offering or ordinary shares" that will be used to fund potential acquisitions. " At present we are actively targeting growing accretive assets that consolidate our cloud SaaS and mobile organically strategies," said Schaeder.

Of course, unlike Kofax, TIS includes does not break out its mobile capture revenue as separate from its "legacy products," so it's quite possible that TIS and Kofax are experience more similar growth rates that at first glance, as both seem to be reporting robust and healthy mobile capture practices.

Some ReadSoft Acquisition follow-up
As far as the ReadSoft price goes, Bob Fresneda, president of ReadSoft NA and SVP, Americas and Asia Pacific, stressed that ReadSoft's owners and co-founders did not just seek out the highest price for the organization. "Lexmark is a nice landing spot for ReadSoft to be drafted by a company that is willing to invest in the technology and the people," he told us.

ReadSoft CEO Per Ã…kerberg stressed that Lexmark has plans to enable ReadSoft to continue to operate as a "standalone company."

All that said, it was pointed out that there is a provision in the acquisition agreement that enables ReadSoft to do another deal of someone offers a bid that is at least 7% higher than Lexmark's before the acquisition closes, which is supposed to occur in about a month. 

In our opinion, ReadSoft would make a great takeover target for Open Text, which is its main competitor in the invoice processing space in SAP environments. ReadSoft also has a strong install base - an asset that Open Text typically covets in its acquisition targets. And 7% over $182M would only be $195M, which still seems like a bargain for ReadSoft. Of course, Open Text doesn't exactly have the reputation as "a nice landing place" for acquired company, so I don't know how the board would take to an offer. It might just server to drive up Lexmark's offer.


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