SourceCorp, BancTec Merger Makes Sense

This week's announcement that SourceHOV has merged with BancTec made complete sense from a strategic standpoint-although the announcement admittedly caught us somewhat by surprise. Here's a true story: I was in Birmingham last week visiting ibml when the topic of BancTec came up. I said I could not figure out why they did not just merge with SourceHOV, especially since they had a common investor after BancTec was acquired by HandsOn3 in February.

BancTec's story was that HandsOn3 was only a minor investor in SourceHOV and that the plan was to integrate BancTec with the smaller Dataforce, which would create a $300M business combining BancTec's document capture outsourcing with Dataforce's call center business. Well, apparently, plans changed. It seemed that others agreed with my thoughts that it made just too much sense to merge BancTec and SourceHOV, which are in  a similar market and are both headquartered in Dallas.

SourceHOV, which is actually the result of the merger of the former Lason and SourceCorp that happened in 2011, must have been doing about $600M in annual revenue, as the new organization is being touted as having annual revenue of more than $900M. Here's a quote from the press release the discussion the complementary nature of the organization's services operations. " “SourceHOV’s deep domain expertise in healthcare and legal claims processing, alongside BancTec’s 40+ years of banking payment processing know-how, enables the creation of a global powerhouse provider for Transaction Processing Services,” said Ron Cogburn, Chief Executive Officer of SourceHOV and Mark Fairchild, President of BancTec in a joint statement.

As you might guess from the dual-attribution, decisions have not been announced as to who is going to be managing what going forward. Fairchild was only recently appointed president of BancTec in the wake of the acquisition by HandsOn3. Nothing will likely be finalized until the deal closes, which is apparently subject to Hart Scott Rudino review. DIR caught up with Ray Wise, VP Sourcing and Treasury at SourceHOV, who said he doesn't foresee any problems. The press releases states the closing is expected to happen this year. Wise said SourceHOV would like to close it sooner, but a lot depends on how long the government review takes.

HandsOn3 will become the owner of the entire organization, as it is buying out SourceHOV's other major shareholder. Related to the transaction, SourceHOV will receive a new $1.1B line of credit.

QAI Re-Ups Multi-Million Deal with NIH

Fulton, MD-based document imaging services specialist Quality Associates, Inc. (QAI) has signed another five-year contract with the National Institute of Health. The contract, which has one base year band four renewal options, is initially valued at $18 million. It's the second consecutive such contract for QAI, which offers both document conversion and systems integration services.

According to the press release, "Efforts to transition NIH’s grant applications function to a paperless process will thus proceed uninterrupted and benefit from the expertise accrued during the initial contract period. In addition, the new contract expands the service offerings QAI will provide NIH. Notably, QAI will offer 508 compliance consulting and training and will design, install and manage end-to-end electronic content management (ECM) systems. QAI’s Microsoft Gold Certified SharePoint subsidiary, DocPoint Solutions (DPS), will spearhead the design and installation of a comprehensive end-to-end SharePoint ECM."

DocPoint Recognized as Top SharePoint Integrator

DocPoint Solutions was recently recognized by TopSharePoint.com on a list of SharePoint consulting companies. From the press release, "According to the website, the list serves as a resource for organizations seeking a consulting company with SharePoint branding experience and a history of successful project implementations using the SharePoint platform. The complete list contains 53 U.S. and international firms known for their SharePoint expertise."

DocPoint, which was recently featured in our premium edition of DIR, specializes in building document imaging applications on top of platform. It is a spin-off of long-time imaging service bureau and systems integrator QAI. Both organizations are based in Fulton, MD.

Canon Announces New Solutions-Focused Subsidiary

In a move that may have been somewhat previewed (check out the last two paragraphs) during our recent meeting with Canon at the AIIM On Demand show in March, Canon USA has lauched a new, wholly owned subsidiary dedicated to expanding Canon’s overall solutions business." Known as "Canon Information and Imaging Solutions, Canon USA "is targeting the company to exceed $500 million in sales by 2014."
Imaging and records management, business process optimization, security, ERP, cloud computing, IT services, and healthcare are all mentioned in the release. It doesn't say if M&A will be involved. Canon technology and that from leading "third party partners" will be utilized. We hope to have more on this in an upcoming premium issue.

Iron Mountain Hires Ex-ACS CIO

A week after getting dinged for lowering its financial outlook, Iron Mountain has stepped up and hired Tasos Tsolakis, the former chief information officer for Affiliated Computer Services (ACS), as its new CIO. Iron Mountain obviously has a huge legacy business storing people's paper documents, which, with the continued increasing adoption of all sorts of electronic content management technology, is probably a dying market - albeit fairly slowly. However, over the past several years, I've been fairly impressed with the high-tech savvy and vision of the at least the people I talk with at Iron Mountain. Now, I know it's a huge company, and I'm only getting the biggest imaging advocates, because that's the business I'm in, but you have to like the hiring of someone with Tsolakis background.

When you are talking about document storage and management, storing paper documents is probably the lowest rung on the latter in terms of complexity and margins you can demand. What ACS (which was acquired by Xerox last year) does, outsourcing business processes for their customers, is way up the latter and that's clearly where Iron Mountain - and everybody else managing paper (Xerox, for example) would like to go.

Ralph

Imaging Recommendations for Medical Records

Cintas put together this interesting list of steps for medical offices/hospitials needing to do imaging as part of their transition to EMR. Of course, the advice plays right into the services that Cintas offers, but I think it's fairly sound, and when I talked with them last, Cintas was doing a fairly brisk business in this market. Several other service bureaus seem to be doing okay as well.

Cintas, of course, is best known as "the uniform company," but they got into document shredding a 10 years back and then, to complement that bought some paper records storage organizations. Finally, a couple years ago, Cintas a couple imaging service bureaus and has rolled out the services nationwide. At last check, it's entire document managment business was doing about $60 million per quarter.

PBMS to Resell Omtool

Thought this was an interesting announcement. Pitney Bowes Management Services (PBMS) is $1.2 billion entity that services large mailrooms.What they are going to do with a distributed capture product like Omtool's software, I'm not sure, but will try and find out.

Pitney Bowes, Inc. (PBI) also recently named a new a president of PBMS. Vicki O'Meara had formerly been an EVP  and the chief legal and compliance officer for PBI. O'Meara does have some operations experience from her 10 years at Ryder System, where she last served as president of the company's $2 billion U.S. Supply Chain Solutions division.

So, if you're following PBI has appointed a lawyer as president of PBMS and signed a deal with Omtool, which specializes in servicing the legal market. Sounds like some sort of strategic direction.

Iron Mountain Asks CMS to Consider Scanning

Paper storage giant Iron Mountain has come up with an interesting pitch to the Centers for Medicare & Medicaid Services. Basically, they seem to be asking the CMS to more heavily consider the benefits of scanning when defining "meaningful use," which is the criteria for receiving reimbursements for electronic medical records (EMR) implementations.

This is interesting because at the Laserfiche user conference I attended earlier this year, an SI who services the medical market indicated that document imaging was not really an important criteria for meaningful use and thus had gone with another ISV, instead of Laserfiche, for its EMR requirements. Iron Mountain is, of course, motivated by the fact that it "manages hardcopy and digital healthcare information for more than 2,000 hospitals across 43 states" and has a growing document scanning business. Nonetheless, this type of lobbying could be a good thing for our entire industry, which is one reason its nice to now have $3 billion companies like Iron Mountain participating in our space.

Correction to H1N1 Case study

One of the reasons I posted this case study is because I thought it was pretty neat that somebody was using unconstrained handwriting recognition in a successful forms processing app. It turns out this is not the case. The service bureau sent me a copy of the forms they are processing, and they do indeed include boxes for letters.

Turns out there was some sort of miscommunication/minunderstanding with the vendor that wrote the case study. Apparently, while A2iA's FieldReader does have the ability to read unconstrained handwriting, it's not being used in this app. Nonetheless, it's probably impressive that leveraging FieldReader's constrained text capabilities, the integrator, QAI, out of Maryland, has achieved something like 80% productivity improvements.

Oce Introduces Digital Mailroom Solution

Oce Business Services, which currently provides physical mailroom services for close to 600 customers, has introduced a digitally-oriented service to compliment this line of business. Oce marketing executive Ted Ardelean described it as an effort to automate an areas of business that has been largely untouched by technology in recent years. Oce's offering is a service, not software, but it does utilize scanners and software. It involves scanning envelopes and scanning pages only when necessary. Aside from the fact that it will be done primarily at customer sites, instead of outsourcing stations, it is similar to the offering of Earth Class Mail. Of course, Oce has a customer base to start with an isn't a start-up, so it will likely be under less pressure to ramp up quickly in what, (despite some 10 years of talk about the Digital Mairloom) is still a relatively nascent market. 

Interestingly, it seems most reviews I've read of Earth Class Mail's services are actually positive, of course, until they apparently more than doubled their pricing, which totally pissed this guy off, to the point where he started a blog to diss ECM He does list a number of alternative mail digitization services. This is starting to seem like a sneaky, good market if you can do it with a reasonable cost structure.

Lason Spin-Off Acquired by DTI

Active Data Services, which spun out of Lason in 2002 via a management buyout, has been acquired by Scranton, PA-based Diversified Information Technologies (DIT). DIT is a $35 million service bureau with scnaning, data capture, and records management offerings. Active Data Services is a Raleigh-Durham-based entity with a combination of document input and output services, and a speciality in the healthcare vertical. It is run by former Lason employee Ken Eller. Its 2008 revenue was reportedly $15 million.

Xerox buys ACS

Wow! Another hardware vendor jumps on a major outsourcing provider. Xerox, the $17 billion copier and document processing giant has acquired $6.5 billion outsourcing roll-up ACS. ACS, of course, has a huge document-centric outsourcing practice, but does all sorts of other outsourcing as well. Its current CEO Lynn Blodgett, is a former data entry outsourcing specialist, whose history actually goes back to Unibase, where he worked with current Kofax CEO Reynolds Bish.

Over the past couple years, ACS has generated more than $500 million in cash each year, but it also has $2 billion in debt that Xerox will assume. According to the Wall Street Journal, "Xerox's deal values ACS shares at $63.11 each, a 34% premium to Friday's closing price and 55 cents below the stock's record high set in February 2006. Holders would get $18.60 and 4.935 shares of Xerox for each ACS share. Xerox also will assume $2 billion of ACS debt and issue $300 million of convertible preferred stock."

The deal should make Xerox a $22 billion company with some $10  billion in worldwide service revenue. ACS' international revenue was very limited, like $.5 billion annually, while Xerox has a more mature international services business, so there should be some synergies there.

Here's a line from the presentation give by Xerox, "The lines between business process
and document management are blurring." - which makes a lot of sense. We've talked a lot recently about enterprise capture and how it needs to feed several areas of an organization, presumably with different workflows. Of course, the same can be said for document output world, where Xerox also plays.

The acquisition, of course, follows, HP's acquisition of EDS and Dell's of Perot Systems, so it's all pretty fascinating. Does this mean that people like Kodak and Fujitsu will buy document imaging service bureaus? BancTec and Scan-Optics have already started down this path.

Ralph

Outsourcing report

Here's an interesting press release I received last week:

"IBM bucked tech industry trends this week by reporting a healthy fourth quarter profit and even a feel-good forecast for 2009 - based heavily on the contributions of the company's software and service business. IBM registered a 20% jump in outsourcing contracts and related work - solid proof that while many companies are cutting back on overall IT spending, the recession appears to be giving a boost to IT and business oursourcing, particularly as a means to cut core operating expenses. For some industry context behind IBM's strong performance - we offer the latest annual review of Global Sourcing Trends by law firm Morrison & Foerster.

This is the third year that Morrison & Foerster has produced a macro year-end/year-ahead review of the global sourcing landscape. This year’s report comes amidst some extreme events impacting the industry – not only the economic crisis, but in the wake of the recent terror attacks in Mumbai and the startling financial fraud unfolding at India sourcing giant Satyam.
Among the current trend lines reported by Morrison & Foerster for the coming year:

A pronounced shift toward cost-driven deals: “Many companies are looking to drive further value and cost improvements on existing deals, often via re-negotiation, service levels and other key terms.” In other words, this could be a good sourcing buyer’s market;

A probable slowdown in new sourcing activity among financial service firms, which traditionally have fueled sector growth; instead, look for institutions to “maximize value and rationalize existing deals” – again putting pressure on cost structure;

Some shakeout is all but guaranteed among service providers, some of whom will endure not current market conditions; survivors will be those “that have sector and geographic diversity, well-managed overheads, and deep, long-term customer relationships.”

At same time, consolidation among largest sourcing firms will mean “less leverage for customers in future negotiations;”

Expect to see more attention on new risk and liability provisions in existing contracts regarding data and privacy breaches;

The Satyam scandal is certain to prompt a “flight to quality” by sourcing customers, with an attendant surge in due diligence;

An unfortunate bi-product of the financial crisis will be a rise in disputes, including litigation, as corporate purchasers become less inclined to waive or ignore potential liability claims.

Morrison & Foerster has one of the most active sourcing law firm practices internationally. Recent engagements include representation of the UK’s official Revenue & Customs authority as well as New York University Hospitals Center in its long-term IT sourcing agreement with IBM and Lenovo Group valued at more than $600 million. The group’s key members handle global projects primarily from the firm’s New York, London and Hong Kong offices.
Please click here to see the full 2009 Sourcing Trends "