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.

Wednesday, July 09, 2014

A Look at Hyland's Latest Bid for ReadSoft

It is presently unclear to me exactly what Hyland's latest bid for the ReadSoft means for the Swedish based document capture and invoice processing specialist. If you remember, in May, Lexmark made a $182M bid to acquire ReadSoft. It's plan was add it to its Perceptive Software business, where it would complement Lexmark's Brainware acquisition from a couple years previous.The ReadSoft board unanimously recommended accepting the offer,  with co-founders Lars Appelstål and Jan Andersson abstaining from getting involved (due to conflict of interest as together they own more than 20% of the company's shares).

The board's recommendation seemed to be based on more than just getting the best price. It also took it into account the future of ReadSoft employees.

In mid-June, Hyland stepped in with a higher bid of $198M - which met the requirement of being 7% or higher than the Lexmark bid in order for a new bid to be considered. Almost immediately, Lexmark countered Hyland's initial bid with an incrementally higher bid of $200M, which the ReadSoft board unanimously recommended - once again with Appelstål and Andersson abstaining. With the acceptance/recommendation of Lexmark's new bid, once again the provision was put in place that a new bid would have to be 7% of higher for the board to consider it.

This week, Hyland apparently decided to end run the ReadSoft board with a bid of approximately 4.5% higher (exact prices in US Dollars are a little hard to calculate because they depend on the value of the Swedish Krona, which is the currency bids are being made it, but safe to say that Hyland is now bidding in excess of $200M) than Lexmark's last bid. So, the board officially can't consider the bid, but shareholders can. And in a press release issued by Hyland UK, which is actually making the bid for ReadSoft (probably due to tax purposes, as Hyland is based in Cleveland, Ohio, US), said that since its initial bid, Hyland has acquired approximately 8% of ReadSoft's outstanding shares, bringing its total holdings to 11%. I'm not sure what percentage they need to complete a deal.

At last report, Lexmark had acknowledged the new Hyland bid and weighing its options.

I'm not really sure how this all going to shake out. As we said in our last issue of DIR, it seems that Lexmark and ReadSoft are kind of destined to be together, so we wouldn't be surprised if Lemark upped its bid to top Hyland once again, but as industry analyst Harvey Spencer pointed out in a conversation earlier today: when does it stop?

From a strategic standpoint, acquiring ReadSoft probably makes even more sense for Hyland than it does for Lexmark, so Hyland may be inclined pay an even higher price. Perceptive already has Brainware, which like ReadSoft is strongest in the invoice capture space, so there is clearly some overlap between the two organizations. While Hyland has AnyDoc, ReadSoft would give Hyland a great boost in the mainland (non-British) European market due to its large customer base and sales staff there, as well as its strong presence in SAP environments. Perceptive already greatly strengthened its European presence last year with the acquisition of Saperion and has also been utilizing Lexmark's European presence to advance sales in that region. Not that ReadSoft doesn't make sense for Lexmark on many fronts, it just may be that it makes even more sense for Hyland.

Anyhow, this is all exciting stuff for ReadSoft I'm sure, and also exciting for the capture market, because about a month ago, I was bemoaning the fact that ReadSoft was going for such a low price. Things are definitely looking up, and hopefully ReadSoft will end up a winner with either vendor.

Tuesday, July 08, 2014

Top Image Systems to Buy eGistics

Document capture ISV Top Image Systems (TIS) has announced plans to acquire cloud archiving specialist eGistics. TIS will pay approximately $18M for Dallas-based eGistics, which had 2013 revenue of $10.6M. eGistics has historically focused on the financial services market - which has also been the primary focus of TIS' recent North American efforts. TIS has also positioned itself as a cloud player in the capture space, so this acquisition dovetails nicely with what it has been trying to do.

TIS plans to leverage eGistics cloud infrastructure to rollout several of what is terms "smart processing applications" in areas like invoice processing, the digital mailroom, bill paying, account opening, mortgage processing, and employee onboarding. We recently detailed how TIS is partnering with workflow ISV K2 on SPAs that it is bringing to market. TIS also has plans to market its software to eGistics blue chip customer base, which reportedly includes "4 of top 5 U.S. banks."

The acquisition will triple TIS' U.S. headcount to more than 65 employees. According to TIS Executive Chairman Izhak Nakar, as quoted in a press release, "As a result of this powerful strategic combination, TIS Americas will be the largest business unit in terms of revenues. Reinforcing our commitment to growing our presence in the U.S. market, the acquisition significantly accelerates this important strategic initiative, giving us tremendous talent, two offices, and a more comprehensive suite of offerings to cross-sell to a broad installed base.”

The acquisition is expected to close in Q3 and be accretive to TIS' bottom line as eGistics reported a 2013 profit of $1.52M. eGistics shareholders will receive 50% cash and 50% stock from TIS. As of the end of Q1 2014, TIS had $15.7M on its balance sheet - more than $13M of which came from a recent public offering of ordinary shares.