Capture and RPA: Who's the Horse and Who's the Cart?

Is document capture a subset of Robotics Process Automation (RPA) or vice-versa? This question came up at the recent Harvey Spencer Associates Capture Conference - an annual meeting of top executives in the document capture software industry. HSA's Mike Spang presented RPA as a $200 million-plus branch of the $4.1 billion capture industry. That said, by our calculations, just three of the market leading RPA companies, UiPath, Automation Anywhere, and Blue Prism, have a combined market capitalization of $4.4 billion, or more than the whole capture market is producing annually in revenue.

And most accounts we hear have RPA implementations pulling through capture sales when the processes being roboticized run into documents, which seems to be a considerable amount of the time. Earlier this year, Boris Krumrey, the Chief Robotics Officer for UiPath, estimated that about 70% of the RPA vendor's 700 customers were likely candidates for capture. UiPath has a partnership with ABBYY to provide these services and was looking to partner with other capture ISVs as well.

It's also been conjectured by no less than Reynolds Bish, CEO of Kofax (which offers both capture and RPA technology) that there is opportunity for BPA/workflow/case management integration with RPA for better managing processes where human intervention is required. So, there seems to be quite a bit of synergy between the RPA and ECM markets. Going one step further, recently ECM vendors Digitech and Hyland have each announced RPA initiatives that seem to primarily built around automating the entry of information from their applications into third-party applications. So, in these cases ECM is pulling through RPA!

This whole situation kind of reminds me of the Web Content Management vs. ECM division we dealt with around the turn of the century. At that time, I remember there was talk of WCM leader Vignette merging with ECM leader FileNet. There was a similar disparity between market caps and revenue (FileNet with the higher revenues but much lower multiple) to what you are currently seeing with RPA and capture. FileNet (and CEO Lee Roberts) could not come to grips with this disparity and thus never consummated the merger. Not too much later, in 2001, the Web technology bubble burst and Vignette was eventually sold to OpenText in 2009.

I'm not saying the RPA technology bubble is going to burst, but Digitech CEO H.K. Bain recently told me that he felt the development of RPA was a step back from the advanced technology his company was working on related to information management. So, what's it going to be? Are capture ISVs going to be acquired by/merge with RPA companies while their valuation is high? Or, are the ECM companies going to wait it out and see if they can catch the RPA vendors on their way down?

Insights into Current ECM Market from DocuWare's President

Today, DocuWare announced the first two applications in its Kinetic Solutions program. Kinetic Solutions are pre-configured to manage specific business processes and sit in the DocuWare cloud. The first two iterations are for accounts payable and human resources.

These are not surprising places to start - as they are two of the most popular areas for businesses to begin their ECM implementations. DocuWare is a Germany-based ECM vendor that has been successful in the U.S. through a strategy of first buying one of its early U.S.-based solution providers (ALOS) and then focusing on recruiting MFP dealers to form the bulwark of its reseller channel.

DocuWare was also one of the first traditional ECM vendors to recognize the significance of the cloud. In 2010, the company earmarked one million Euros for Web-based and SaaS initiatives, which eventually led to the launch of the DocuWare Cloud in 2012. Cloud adoption ramped up gradually but by the end of 2017, the ISV was projecting the over half its new customers would be choosing the Cloud - a high rate compared to most legacy ECM vendors.

So, to us it seems that DocuWare's leadership has proven to have some keen insights when it comes to ECM adoption trends. And, in its latest press release announcing the first two Kinetic Solutions, President Juergen Biffar offered his views on three current trends he is seeing. “We are seeing three signals in the market,” he said. "First, because of its attractive economics and simplified IT impact, there is escalating demand for cloud services versus traditional on-premises software. Second, functional utility is not enough – clear, intuitive usability is now expected. Third, companies are more inclined to deploy a narrow, departmental solution versus trying to configure complicated, legacy software. Enterprise-focused software that requires lengthy and complicated professional services is witnessing softer demand."

There has been a lot of talk in the ECM market about the emergence of "content services" and breaking down monolithic ECM solutions into "microservices" that can be consumed in smaller bits and used to assemble process-specific applications. With its Kinetic Solutions, DocuWare has kind of taken this approach, but instead assembled the microservices on its own into "micro-solutions" designed to be more manageable than a traditional ECM platform. This makes perfect sense for the mid-market businesses that they target who probably want something more "out-of-the-box" than a series of configurable ECM services.

This seems to be a good approach on DocuWare's part and should help the ISV continue to increase its percentage of cloud sales, which should also lead to continued success into the foreseeable future.

A Look at Lexmark's Q3 Results

Lexmark reported its Q3 2016 results this morning. The focus in the news was that overall the company increased profits by 40% YOY, to $49M from $35M last year. Our main focus in DIR is the Lexmark Enterprise Software (ES) division, which over the past few years rolled up several companies covered by us, including, Kofax, Perceptive, Brainware, and ReadSoft.

The Kofax acquisition, which practically doubled the size of Lexmark ES, was completed in Q2 2015, so Q3 2015 represented Lexmark ES' first full quarter including Kofax results. Lexmark ES Q3 2015 revenue was reported at $165M with operating margins increasing to 19% - a positive trend. Of course, these results were released just three days after Lexmark had announced that is was "exploring strategic alternatives to enhance shareholder value." So, a lot has happened between then and now, including, in April, Lexmark agreeing to be acquired by a consortium of Chinese investors led by Apex Technology and PAG Asia Capital.

As Apex's primary business is the manufacture of ink cartridge chips, there have been questions about its use for Lexmark ES, and rumors have been flying that Lexmark ES would be sold in its entirety or piecemeal prior to the Apex acquisition closing, which is supposed to happen before the end of this year. In the meantime, Lexmark ES struggled through a rough first quarter before rebounding somewhat in Q2.  For Q3 Lexmark has reported revenue of $157M or about a 5% YOY decrease. Not great numbers, but considering all the FUD in the market surrounding who is going to own Lexmark ES going forward, not terrible. We didn't get any other numbers, like profitability related to Lexmark ES, as Lexmark corporate is keeping reporting to a minimum, and "will not conduct quarterly conference calls while the [acquisition] is pending."

To us the Q3 numbers indicated that Lexmark ES is still a very viable business, albeit with a run rate closer to $600M than the $700M that was originally projected when Kofax was acquired. ES has a large install base, along with plenty of maintenance revenue, as well as a stack of technology that it continues to invest in. So, what's it worth? Probably not the $1.89B we were speculating on in the wake of Open Text's acquisition of EMC's Enterprise Content Division (ECD). That was based on the projected $700M run rate.

Let's scale back that run rate to a more realistic $640M. Applying the same multiple of 2.7x revenue that Open Text paid for ECD, that puts a price for Lexmark ES closer to $1.73B, which still wouldn't be a bad price, considering Apex and PAG are paying $3.6B for the entirety of Lexmark, which is about equal to the revenue that the entirety of Lexmark reported for 2015. So, if they were to get even $1.5B for Lexmark ES, they would still be getting an approximately $3B hardware entity for close to $2B, which seems like a great deal. That said, Apex and PAG may be willing to go even lower on Lexmark ES, depending on what they value that hardware business at.

The bottom line is that Lexmark ES, even with its recent growth struggles, could be had at a relative bargain it seems. The question is, of course, who would buy it? Open Text is presumably out of the picture after the ECD acquisition, but you never know. Hyland owner Thoma Bravo has been rumored to be in play, but at their recent conference Hyland executives gave us no indication that was under consideration. Xerox wanted to buy Kofax before Lexmark did, and Xerox has stated they are on the ECM acquisition trail, but if the $1B price that Lexmark paid topped their original bid, would they be inclined to pay more for something larger, or would Apex and PAG be willing to break off Kofax separately for Xerox and sell it to them at their original bid? Or could Lexmark ES execs like Reynolds Bish and Carl Mergele cobble together enough financial backing for a private equity bid?

We still expect something to happen with Lexmark ES before the Apex/PAG acquisition closes. That would give us a little over two months. Stay tuned!

Putting a Price Tag on Information

Guest Column

Intro: It seems that recently we are running into more and more technology industry visionaries who are saying we now have entered the “Age of Information.” At the recent Harvey Spencer Associates Capture Conference, for instance, author Chris Surdak showed a slide "Information is the New Wealth" that listed the top six companies in the world by market capitalization. Apple, Google, and Microsoft, which he said basically specialize in "information management" topped the slide, followed by more traditional companies like Exxon Mobile, Berkshire Hathaway and PetroChina. The problem is, as AIIM Chief Evangelist John Mancini points out in his excellent piece, there is no standard in place for measuring information as a tangible asset. 

Check it out: 

By John Mancini, chief evangelist, AIIM

No company in the digital age could run without it and it is arguably the most important asset any organization has—but how do you put a price on information?

Intellectual property is listed as an intangible asset in financial reports. But there is no line on the balance sheet for information. No standard method or process for giving it a value, despite the fact that we are churning out more and more information every day. To put this into perspective it is estimated that Facebook users share around 2.5 million bits of content a minute. IBM estimates we create 2.5 quintillion bytes of data every day.

Information is coming at us from everywhere—from social media, purchase transactions, blogs, GPS data, sensors etc. This list is endless. The consumerization of IT, cloud, mobile, and the Internet of Things, have all contributed to a surge in big data that is literally changing our world and the way we operate in it.

Information is now one of a company’s most precious assets. When used correctly it can provide companies with a wealth of insight about their customers and competitors that can give them a business edge. Companies are investing heavily in protecting, securing, analyzing and documenting this data. 

Business leaders increasingly talk about how information is their most valuable asset. Yet information still does not appear on the balance sheet. As Doug Laney, vice president at Gartner so concisely puts it: “We are in the midst of the information age, yet information is still considered a non-entity by antiquated standards”. 

In this age of digital transformation, it comes as a surprise that there is no standard model for valuing information.

Accounting for information

As far as I can see, there is a growing gap between the traditional ways we value organizations, in terms of the tangible and intangible assets reported in financial statements, and the value the market puts on organisations. The huge sums paid for some companies shows our inability to measure and value the information assets of an organization.

According to Laney, in 1975 on average the tangible assets of a corporation represented 83% of its value. Today that number is 20%. Therefore, more than 50% of merger and acquisition exchange simply can’t be accounted for.

Take for example Microsoft’s acquisition of LinkedIn. Look at the accounting value of LinkedIn—$3.2 billion in revenues—and compare it to the price paid by Microsoft—$26 billion—and it doesn’t appear to make sense. We immediately start asking the obvious questions: Are we on the verge of another doc.com bubble?  Why is the accounting value of the company so different from its market value? Has Microsoft lost the plot?

The answer, I believe, is quite straightforward. The disharmony comes from our inability to measure and value information assets in an organization. This is reflected in the growing division between what we actually report about companies and what we actually inherently know about them. But it is also linked to the way we continually undervalue the investments companies have made in creating, analyzing, protecting and storing their data to create real customer value.

Finding a measure

The nearest thing we have to measuring information right now is ‘Infonomics’. This is essentially a framework for organizations to measure, manage, and monetize information as a real asset. But it has still to be taken on board fully by organizations.

Early this year, in a bid to come up an answer to assigning a value to information, AIIM brought together industry leaders in information management from the likes of Shell and Gartner, to discuss this pressing issue.

One particular point soon became crystal clear—we need a standardized way to measure the value of information, and we need it fast.  Although most organizations now understand how valuable their information is, they have no way of valuing it as an asset. This is an important job for information professionals and accountants to get to grips with over the coming months and years, and one that AIIM will be devoting considerable energy to. 

As business becomes more and more information driven, it is imperative that there is a standard in place that can measure the usefulness and monetary value of information. How this is to be done has still to be decided. But it is a problem that isn’t going to go away.

For more information: www.aiim.org

Based on ECD Deal, what is Lexmark ES Worth?

Big day today for M&A in the enterprise content management (ECM) space. No less than three significant announcements:

1. Open Text announces plans to buy EMC's Enterprise Content Division (ECD) for $1.62B or 2.7x ECD's fiscal '15 revenue of $599M.
2. Apparently Bloomberg News is reporting that Apex Technology Co. and PAG Asia Capital, which in April announced plans to acquire Lexmark, "are in talks with a number of private equity firms about a sale of [Lexmark Enterprise Software (ES)]."
3. Finally, HP announced plans to buy Samsung's printer business for $1.05B. 

Not that this last item is insignificant, but, despite some recent efforts, Samsung had yet to emerge as a real factor in the ECM/document capture space. So, in this post, we'll focus on the significance of those first two announcements. 

ECD had been rumored to be for sale since it was first announced that Dell was planning to acquire EMC. There were two reasons that were offered for the rumored sale: 1. Dell wanted to focus on storage and ECD did not fit with that strategy. 2. Dell reportedly needed to generate some cash to help with the financing of the deal. Well, there must have been some truth behind this talk, as less than a week after the Dell/EMC deal closed, the deal with Open Text for ECD was announced. The ECD sale to Open Text is expected to close within the next 3-4 months.

Open Text has done a lot of acquisitions over the years, and I'd have to say that the $1.62B price tag and 2.7x revenue multiple represents a pretty good premium for them to pay. So, Open Text obviously thinks they are getting something of value. ECD is, of course, a good fit, as Open Text and ECD are both serious ECM players with some overlapping, but also a lot of complementary, technology. The move pushes Open Text forward even further as a market leader. 

It also likely removes Open Text from the bidding for Lexmark ES, which Open Text had been rumored to be looking at fairly recently. So, with rumors obviously still floating around that Lexmark ES is for sale, who is out there to buy them? The other name I have been hearing is Thoma Bravo, which owns Hyland. Coincidentally, I am going to be at Hyland's CommunityLive Conference this week. 

One of the big story lines associated with the conference is that this is going to be former CTO Miguel Zubizarreta's final event with the company where he has worked practically since it was founded. Zubizarreta has always had a reputation of wanting to build rather than buy technology, so the fact the Lexmark ES is now on the market as he is retiring could be a fortuitous coincidence - if indeed it's a coincidence at all. I hope to get some insight into Hyland's direction over the next few days.

So, how much would Thoma Bravo have to pay to pick up Lexmark ES, or even just the Kofax piece, which is rumored to be on the market separately as well? Well, first off, let me say that the Bloomberg article's statement that Lexmark ES "could fetch as much as $1 billion" seems to be way off. Remember, from 2010 to 2015, Lexmark invested approximately $2B in rolling up the components that make up ES, so to think they would turn around and sell it for less than what they paid just for Kofax last year ($1B), seems preposterous. (Of course, EMC paid $1.7B for Documentum alone in 2003, not to mention $275M for Captiva two years later, plus more for some other stuff included in ECD, but those acquisitions and valuations were a long time ago compared to the Lexmark ES acquisitions.) 

Okay, so what can Lexmark's investors expect to get for ES? Well, in my opinion, Lexmark ES lines up pretty closely with ECD. They both own market leading capture software (Kofax and Captiva, respectively) as well as large ECM practices - Perceptive and Documentum. Granted, Documentum is a higher end business than Perceptive traditionally has been, but Perceptive has traditionally been one of Hyland's most direct competitors, just as Documentum has been one of Open Text's. 

So, let's just say Lexmark's investors want to get a premium similar to what Open Text paid for ECD. To start, we'll value Lexmark ES as a $700M a year business, as that's about the run rate that was being projected when Lexmark bought Kofax last spring. Using that 2.7x revenue multiple that Open Text paid, that would value Lexmark ES at $1.89B, which is not a bad number, because it enables Lexmark to save some face on their $2B investment. (Kofax made up about half the ES run rate, so based on the ECD revenue metric, a Kofax sale would be about $950M). I guess it just depends if Thomas Bravo or whoever is going to make the purchase agrees that Lexmark ES is worth what ECD was worth. If they do, I bet a deal gets turned pretty quickly.

Lexmark ES Q1 Numbers Disturbing

For those of you that haven't done the math for yourselves, Lexmark Enterprise Software (ES) saw about a 15% decline in revenue for Q1, YOY. Yes, we realize Lexmark reported 60% growth for ES on revenue of $143 million, but last year's Q1 didn't include Kofax's numbers. In calendar Q1 last year (Kofax's fiscal Q3), the ISV did $75 million in revenue, and it also acquired a $9 million a year business in Aia Software towards the end of the quarter. So, we'll put Kofax's Q1 2015 revenue at around $77 million.

In the meantime, Perceptive Software, operating as a division of Lexmark, reported $90 million for the first quarter of 2015. If you put those two figures together, it gives you a Q1 2015 revenue number of $167 million, $24 million more than the two combined businesses reported this year for Q1 as parts of Lexmark ES. We don't have any insight into the breakdown of the Lexmark ES in numbers - in particular, how much was from generated in software sales, but we had heard rumors that Lexmark was struggling in that area in particular.

The 15% erosion in revenue is disturbing, and we hope it is not indicative of the industry's direction. We realize Lexmark has been struggling with integration issues, as well as uncertainty related to the recent sale of the company, so maybe the first quarter was an anomaly and the organization will bounce back strongly. That said, Lexmark's competitors are certainly trying to keep the FUD (fear, uncertainty, and doubt) levels pumped up, as I heard a lot of talk at the recent AIIM Conference related to the potential challenges of being owned by a group of investors from China.

In addition to Lexmark, Open Text failed to show organic growth in Q1 (its fiscal Q3), EMC's Enterprise Content Division (ECD) revenue continued to shrink, down to $134 million in Q1 2016 from $138 million in Q1 2015 (not to mention the fact that EMC is reportedly trying to sell ECD to help fund the Dell acquisition), and Top Image Systems (TIS) struggled in Q4 '15 with its Q1 2016 numbers still to come. It has not been all bleak news, as smaller companies like DocuWare and M-Files reported strong growth for 2015, and Hyland Software had another strong year as well.

What is somewhat interesting is that DocuWare, M-Files, and to some extent Hyland, are focused on the SMB space (Hyland stressing the "M"), while EMC, Kofax, and to some extent ReadSoft (also part of Lexmark ES) and Open Text are more focused on the enterprise space. So, maybe the growth in the ECM market is in the traditionally underserved SMB space (as we've been predicting would happen for years). This would certainly bode well for TIS, which recently put a stronger focus on shopping financial process automation to the mid-market.  Then again, the Perceptive Software's content management business is a major part of Lexmark ES and it focuses on the mid-market (we're really not sure how the individual components within the division made out).

When you add these recent ECM software struggles to the steady erosion we've seen in margins in the document scanner hardware market (as well as some of the reogranization at the leaders ), it makes us doubt the future of our industry. That said, the attitude at this week's AIIM Conference in New Orleans was not wholly pessimistic. There were plenty of optimistic vendors, a bevy of end users looking for solutions, and the usual group of energetic and imaginative people that combine to make our industry so exciting at times. New solutions stressing, the cloud, mobile, and emerging technology like natural language processing - as well as a new vision embracing enterprise content as data and thus creating a bridge for mainstream IT crossover, certainly created plenty of positive buzz at the AIIM event (or was that just the alcohol on Bourbon Street?). We'll have more details on what we learned at AIIM in the next issue of DIR.

In the meantime, let's hope for a stronger Q2 for everyone (well, except for your competitors in some cases, I guess.)

Lasefiche EMPOWER Event Continues to Grow

LONG BEACH, CA – It was good to return to the Laserfiche EMPOWER Conference this year after a three-year hiatus. Last time I had the opportunity to attend was 2012. I had planned to go in 2013, but a snowstorm changed that. 

Since that 2012 event, I haven't really had a chance to connect with the Laserfiche executive team. And there have been big changes to that team over that time. In 2013, Tom Wayman, VP of marketing and product strategy, died. The next year, his mother and company founder and CEO Nien-Ling Wacker passed away. (Both had awards named after them that were presented at this year's conference.) Nien-Ling's husband Chris Wacker has taken over as CEO, with CTO Karl Chan having added president to his title. In 2014, Laserfiche named Thomas Phelps IV as its VP of corporate strategy and marketing.

During the last few years, Laserfiche has continued to grow. For the 2012 conference, which was held at the Anaheim Marriott, I reported 1,600 people attended. For this year's event, which was moved to the Long Beach Convention Center (a much bigger venue), Laserfiche announced 2,700 attendees. Chris Wacker also told me the company enjoyed 10-12%  revenue growth in 2015 over 2014, which was also a growth year.

Overall, 880 organizations were represented at EMPOWER. This included a mix of end users, resellers, and vendor partners. The big announcement was the release of Laserfiche 10, which features improvements in collaborative and mobile capabilities, as well as the introduction of a library of more than 100 pre-built workflows across several vertical markets and horizontal applications. New analytics tools for BPM were also introduced.

A few things that have not changed in the four years since I last attended EMPOWER:

1. Laserfiche remains very strong in state and local government market.
2. There is still a big push toward getting many of these government customers to expand their implementations enterprise wide. It seems to be working. For example, I attended a presentation by the City of Boca Raton, which has expanded its implementation from the clerk's office to the A/P department and now has 50 more projects either currently being implemented or that have been requested. Many of the attendees I spoke with were considering similar (if not quite as big) expansions.
3. Epson is still the event's premier sponsor, although Epson's scanner business has grown considerably since 2012. According to Mark Pickard, senior product manager, Document Scanners, Epson America (citing numbers from the NPD group) through the first 11 months of 2015, the company's revenue from commercial scanners grew 24% over 2014, which was twice as fast as Epson's nearest competitor. He credited Epson's relationship with Laserfiche and its channel as contributing to that growth.

We'll have more detailed coverage of the event in our next newsletter, but that's a quick summary for you.

Aggressive Cost Cutting in Store for Lexmark Enterprise Software

Lexmark reported its Q2 2015 earnings today. Overall, Lexmark reported $891M in non-GAAP revenue and $139M in earnings. Apparently, Wall Street traders were not impressed with these numbers along with lowered earnings forecasts, as Lexmark shares were down more than 20% in early trading. I don't pretend the understand the complete dynamics of Lexmark's business, but I do follow its Enterprise Software division fairly closely, and this was the first quarter it reported that includes any revenue and income from Lexmark's Kofax acquisition, which closed on May 21.

For Q2, Lexmark reported $150M in total Enterprise Software revenue, with margins of 20%. On the surface, this looks great, considering that Lexmark's Enterprise Software margins for 2014 were around 5%. But, if you look closely, the Kofax Q2 operating margins are listed at 42.6%, which has something to do with the timing of the acquisition. Apparently, some Kofax operating expenses in areas like IT, finance, HR, facilities, and legal and corporate staffing were charged to "All Other," instead of Enterprise Software.

"The software segment benefited from the timing of the Kofax closing which coincided with the most profitable portion of what is traditionally Kofax’s strongest quarter," explained David Reeder, VP and CFO, of Lexmark in an analyst call. "Kofax added $48 million of revenue and $20 million of operating income to second quarter results." (Quotes are from the Seeking Alpha transcript of the analyst call.)

When you take Kofax out, Enterprise Software reported operating margins of 9.8%, which is not great, but is an improvement over what we've seen historically from the Enterprise Software group. And, of course, we all know that Lexmark has set a goal of exiting 2016 with 25% operating margins for Enterprise Software. So, how does it get there?

In conjunction with today's quarterly financials report, Lexmark announced plans to eliminate about 500 positions. "We are announcing a restructuring action today, the vast majority of which reflects the cost synergies targeted for the ReadSoft and Kofax integrations," announced Chairman and CEO Paul Rooke. "In total, we’re eliminating about 500 positions worldwide, primarily across the G&A, marketing, and development organizations with about one-third of the impacted positions being shifted to lower cost countries, and we expect to complete these actions by the end of 2016. Financially, these actions are expected to generate annualized savings of about $65 million in 2017, the vast majority of which will benefit the Enterprise Software segment."

Basically, it sounds like Lexmark is expecting to save more than $33M in operating expenses annually in Enterprise Software - as well as grow the division due to "revenue synergies." When you do all the math, this should work out to 15% operating margins for 2015 and 25% by the time 2016 ends.

Obviously, there are going to be some challenges growing Enterprise Software while simultaneously reducing headcount, but Lexmark at least has a vision to try and executive on. I feel badly that it sounds like many people in our industry are going to lose their jobs as part of this vision, but as document imaging and ECM gets subsumed into more general IT and larger organizations, this type of evolution is inevitable.

Now, I'm not saying Lexmark is guaranteed to succeed at what it has set out to do, specifically in terms of margins and more broadly in terms of transforming from a hardware player to establishing itself as a leader in the ECM space. But, I will say it's definitely worth watching - and I'm sure most of its competitors are. Lexmark is clearly betting big here. We should know the results of those bets in another couple years at the latest.

Bish Appointed President of Lexmark Enterprise Software

You can't accuse Lexmark of being predictable and boring. Almost two months after announcing its surprise $1B bid for document capture market leader Kofax, today, Lexmark not only announced it had closed the deal, but that Kofax CEO Reynolds Bish was taking over as president of Lexmark Enterprise Software.
Most people in the industry had assumed that Bish, who has hired by Kofax in 2007 to drive up its valuation and sell the company, had successfully completed his mission and would move on.

Instead, we have Bish taking over for Scott Coons, who was basically the founder of Perceptive Software -  the rock on which Lexmark Enterprise Software was built. Lexmark acquired Perceptive in 2010 and followed that with several other software acquisitions all rolled up under the Perceptive flag. The result was a software business with run rate of approximately $350M, prior to the acquisition of Kofax, which now doubles the size of that business. The curveball, however, is that Coons, who is some 15 years Bish's junior, is taking his retirement while Bish takes the reins of Lexmark Enterprise software (which is what Perceptive was renamed earlier this year).

The said, Bish's appointment really makes perfect sense. When you add together the revenue of Kofax, ReadSoft (which Lexmark acquired last year) and the former Brainware (now Perceptive Intelligent Capture), capture now makes up at least $450M of Lexmark Enterprise Software's projected annual run rate of $700M. And who better to run a $450M capture software business than Bish?

In addition, for the past couple years at least, Bish's vision has been wider than capture. He executed a series of acquisitions while at Kofax to help transition the company into the emerging smart process application (SPA) space. In many ways, the portfolio that Kofax adds with Lexmark, will further beef up its SPA play. But the bottom line is that, as reflected in its name, Lexmark is striving to be an "enterprise software" company and that has also been Kofax's goal since Bish took over.  Bish put a lot of infrastructure and strategies in place to execute on this goal and will now be able to carry them over into Perceptive.

One other thing, as Lexmark Enterprise Software moves to reach its goal of a 25% operating income margin by 2016 (from approximately 10% at the end 2014 for the combined Kofax and Perceptive businesses), there are certainly some personnel cuts that are going to have to be made. Technically coming in from the outside may make this easier for Bish to do than Coons, who to date had been operating Perceptive on fairly low margins in part due to Lexmark's laissez-faire approach to software.

Not that Coons was doing a bad job. In fact, when Lexmark first acquired Perceptive, it promised it would let Coons run the software business without interference and to date, Coons noted in a call with DIR, Lexmark has done a great job of keeping its promises. This hands-off approach really enabled Lexmark to establish itself as a major ECM player - which many doubted it could do.

Coons told us he was flat out ready to retire after 20 years in a very competitive market and that he supported Bish as the man to succeed him. Bish is certainly no stranger to personnel turnover, as he was an agent of change when he took over Kofax in 2007 and helped mold it into a true enterprise software vendor. As a result, Bish is probably the best man for the job now that it is time to do some remolding at Lexmark Enterprise Software as well.

Congratulations Reynolds on your new appointment and Scott, best wishes in  your retirement!

Lexmark Attempting To Corner the Market on Capture

Wow. That really caught me by surprise. About 4:30 today it was announced that Lexmark was acquiring Kofax for $1B net of cash. I was just finishing up my Kofax Transform conference story and about to start writing my piece about how Xerox was going to integrate the Kofax technology into its organization. It really made a compelling story. And the rumor circulating around AIIM last week, was the the Xerox-Kofax deal was going to close any day...Then I heard something about Kofax asking for too much, and the next thing I know Lexmark announced it had made a bid of $11 per share, or about a 47% premium over what the Kofax stock was trading at today. It's also more than 3x Kofax's 2014 reported non-GAAP reported revenue of $297M -so from that perspective it's not a bad deal.

There is a lot to like about this deal from Perceptive's standpoint. It's latest and most aggressive move in an already aggressive ECM software strategy. That said, there is certainly some overlap with the recent ReadSoft acquisition, as well as its previous Brainware acquisition. But, if you are going to transition from a hardware to a software vendor, you might as well go hard.

I wouldn't be surprised to see Xerox make a counter offer, but if $1B was already too rich for their blood. But still, if I was Xerox, I would be looking to find some money somewhere, because they really were planning on investing a lot in this partnership and now Kofax is in danger of being taken off the market by a competitor. Exciting times.

Recent Quarterly Financials Show Signs of Maturing Market

As I mentioned in the latest issue of our premium publication, over the past two weeks, a number of document imaging software vendors released their numbers for the three months ended Dec. 31, 2014. I would have liked to cover some of these numbers in the newsletter, but since all the information is publicly available anyhow, I bumped it for some original content. Anyhow, here are some of the highlights I pulled off of news releases, presentations, and transcripts of analyst calls:

Lemark/Perceptive Software

• For Q4, Lexmark reported Perceptive Software revenue of $99M, which represented 37% YoY growth. 
• For FY14, Lexmark reported Perceptive Software revenue of $313M or 31% growth. 
• That sounds great, until you get to the fine print where it says, "Perceptive Software organic growth of -10% for Q4, excludes acquisitions completed in the past four quarters. Perceptive Software organic growth of -3% for the full year 2014. (ReadSoft and its $100M of annual revenue was the big acquisition).
• In the analyst conference call, CFO and VP David Reeder said Perceptive revenue was negatively affected by "large deal timing and a shift from perpetual license to subscription sales."
• Perceptive did, however, manage an operating income of $11M in Q4, up considerably from 2013's $2M income for Q4, and up $3M from Q3. The fourth quarter boosted Perceptive's operating income for the year to $14M - a $16M improvement from the previous year.
• Commented CEO Paul Rooke, "We also expect continued growth and margin expansion in Perceptive Software as we strengthen our solutions offerings, factor in a full year of the cost and expense reductions taken in the second half of 2014, optimize maintenance pricing, and execute the expected cost synergies with the integration of ReadSoft."
• Rooke also commented that he felt Perceptive was on target for hitting Lexmark's 2016 goals of $500M in annual revenue and 25% operating margins. "Perceptive Software revenue and operating income continued to make steady progress to our 2016 revenue and operating margin targets. We are quite pleased with the trajectory of the business as revenue and operating margin grew year-over-year and sequentially."

Kofax

• As pre-reported, Kofax showed growth in both its software license sales and total revenue for its FY15 Q2.
• However, the net total revenue growth was only $4M, the bulk of which could theoretically be attributed last fall's acquisition of SoftPro last fall, which had reported $13M of revenue for 2013. So, like Perceptive, Kofax really didn't see much organic growth in the quarter.
• Unlike Lexmark, Kofax can't blame the slowed growth on a switch to more subscription sales. When asked about recurring revenue during the analyst conference call, Bish estimated that 90% of Kofax's was coming from maintenance and only 10%, from what he called "term" licenses, which I assume means subscriptions, with most of the term licenses coming from Kapow, which primarily followed a subscription model when Kofax acquired it.
• Bish also said that going forward, Kofax will no longer differentiate between "core capture" sales and sales from "mobile and new or acquired products." In the call with analysts, he explained, "Software license revenue from core capture products declined year-over-year in both the second quarter and six months ended Dec. 31, 2014, but at a lower rate in the second quarter than the first quarter. These declines were primarily driven by customers increasingly choosing to purchase Kofax TotalAgility and solutions built on that platform as well as our mobile capture, Web capture, and electronic content transformation products rather than our legacy Kofax Capture and Kofax Transformation Modules products.
  
  "The capture market is not in a state of decline nor is Kofax losing market share. Rather, we are undergoing a rather dramatic shift in buying preferences from our legacy capture software products to our mobile and new or acquired products.
  
  "As a result of the complexity of these issues discussed above and the challenges associated with accurately calculating Kofax's multi-channel capture revenues, we will no longer report core capture revenues or attempt to report multi-channel capture revenues. Instead, we will only report total software license revenue.
   
• Kofax's profitability was way up compared to its FY15 Q1 with its operating margins coming in at 17.7% for Q2, compared to just 6.3% in Q1.
   
• Subsequent to its earnings release, Kofax announced that its shareholders voted in favor of a plan to delist the company's shares from the LSE, so they would be listed exclusively on the Nasdaq. Plans to carry out that motion are underway.
   
• The deslisting was one of four matters voted on by the shareholders, with all being approved except for a call to change the company by-laws to make them more "customary for a Bermudian company with shares only listed on NASDAQ." It sounds like the Kofax board would still like to get that proposal passed.

Nuance

• Nuance reported Document Imaging revenue for its FY15 Q1 of $60.1M, a slight increase over its FY14 Q1 revenue of $58.3M, but it's important to note that the previous year's Nuance's revenue did not include Notable Solutions, Inc. which was acquired this summer.
• Most likely buoyed by NSi sales, had had a very strong FY14 Q4.

EMC

• EMC's reported its 2014 Q4 revenue for its Information Intelligence Group (IIG), which includes Documentum and Captiva, as $174M, which represented an 8% YOY drop. For the year, IIG's revenue was $640M, which represented only a 1% drop.
• Also, at its recent sales meeting for the group, EMC announced it has changed the name from IIG to the Enterprise Content Division (ECD).

So there you have it. A brief analysis would tell you that there wasn't a lot of organic growth in the past quarter among these market leaders, which is not a good sign. Profitability on the other hand was up. Add these two trends together, and it seems like we now have a fairly mature market.

All quotes from analyst calls were transcripts compiled by Seeking Alpha.

Xerox Signs on As Kofax Reseller

Today Kofax announced that it has signed a global partnership with Xerox. Under the terms of the agreement, "Xerox will sell, market, deploy and support Kofax TotalAgility," with support from Kofax sales and services staff. Kofax TA represents its integrated line of products including capture, BPM, analytics, e-signature and data integration technologies.

Couple interesting points about this:

• The Xerox executive quoted in the press release talks about Kofax TA being part of Xerox' next-generation MPS offering. The concept of MFP/printer vendors moving more deeply into ECM was factored into our recent 2015 DIR prediction that there will be a major ECM/Capture acquisition by any MFP vendor in 2015.
• Somewhat along those lines, Hyland Software also recently announced a new global partnership with Xerox. Can we connect some dots here?

Top News Stories in 2014

 This article originally appeared in our Dec. 19, 2014 premium issue.

What Went Down in 2014

A review of our five biggest news stories/trends in the past year. We’ve listed them in reverse order, like a countdown.

5. Convergence of call center and capture markets: It’s the natural evolution of multi-channel capture to eventually include voice. Conversely, as call centers evolve into contact centers, they are starting to embrace document-centric communication. Then there is everything in between: e-mails, Web sites, text messages, social media, etc., that is somewhat unconquered, and this is where the convergence is starting to occur.

At this year’s Harvey Spencer Associates Capture Conference, customer experience management (CEM) consultant Michael McBrien showed a slide depicting an ideal contact center where social, Web, in-person, phone, and mobile communications were all integrated. When asked if anyone is actually doing this, his answer was no.

That said, from the capture market perspective, we are starting to see these elements come together through initiatives like Kofax’s First Mile SPA (smart process application) strategy [see DIR 3/28/14], Kodak Alaris’ partnership with German IDR/AI specialist ITyX, and even document outsourcing specialist BancTec’s recent merger with Dataforce Group [see DIR 8/22/14]. From the contact center side, it was good to see a respected industry veteran like McBrien show up at the HSA Conference.

4. Kofax misses consecutive quarters: The year started so auspiciously for the Irvine, CA-based capture and SPA vendor. At the annual Transform conference held in March, Kofax was riding four straight quarters of software license and overall growth. In addition, an IPO on the Nasdaq (which was completed in Dec. 2013) was paying off, with Kofax’s market cap soaring to around the $750M mark

Then came Kofax’s fiscal Q4 2014 and Q1 2015. For the quarter ended June 30, Kofax reported a non-IFRS YOY decline in software license revenue of 7.5% and a YOY decline in EBITDA of 38.9%. For the quarter ended Sept. 30, Kofax reported a YOY non-GAAP decline in software license revenue of 3.5% and an adjusted EBITDA decline of 47.8%. For Q1, Kofax’s margin was just 6.3%—when in March CEO Reynolds Bish had set a goal of reaching 20% margins within three years.

In both quarters, Bish blamed the shortfalls on large seven- and high-six-figure “core capture” deals that had slipped into future quarters. After the more recent miss, Bish went so far as to say that Kofax will be putting more focus on its “mobile and new or acquired products,” hoping they will pull through traditional capture sales—and get capture back to “single-digit growth.” “We are now accelerating the reallocation of resources and expenditures into this fast growing part of our business,” said Bish [see DIR 10/10/14].

But then a funny thing started happening. In the past month and a half, since Kofax announced its fiscal Q1 results on Oct. 30, the ISV has issued no less than five press releases touting software deals in the high-six to seven-figure range, mostly focused on automating document capture processes. When you couple this with Kofax’s continuing to increase its number of $100,000 (mostly capture) deals (even during its Q1, the number of six figure deals increased by 33%), maybe the capture market isn’t in as bad of shape as Kofax had thought.

3. Increase in onboard imaging processing (IP) technology in document scanners: We’ll admit this isn’t a very sexy story in and of itself, but to us it is the sign of something bigger. In 2014, three leading scanner vendors announced enhanced on-board image processing features: Fujitsu introduced PaperStream IP, which has replaced Kofax VRS as its bundled IP technology [see DIR 1/31/14]; Visioneer embedded IP on a chip with its new On Board Acuity [see DIR 7/18/14]; and Kodak Alaris introduced a new embedded version of its PerfectPage technology [see DIR 6/13/14].

So, what’s the big deal? This trend may help scanners run at closer to rated speeds today, but down the road is when the big benefits could come. More onboard IP creates the potential for removing the PC (where IP has historically been run) from the scanning equation. Not surprisingly, Fujitsu, Visioneer, and Kodak Alaris are all members of the TWAIN Working Group, which is actively working on a new TWAIN Direct standard, designed to connect scanners to applications without going through traditional drivers. EMC Captiva (which develops ISIS drivers) has undertaken a similar initiative with its Cloud SDK.

One end game of these initiatives is that they will enable scanners to be run by a multitude of alternative computing devices such as network devices, phones, tablets, netbooks, and who knows what else. They should also simplify development of capture applications. This trend of more onboard IP is helping move document scanning into the 21st century and beyond.

2. Rise of Cloud computing in ECM: I don’t think we’ve hit the tipping point yet, but in 2014 there were multiple small movements this way that are starting to add up: You had reseller IDT telling us that 40% of its new business is coming from cloud sales [see DIR 11/7/14]. You had Captricity, a 100% cloud-based crowdsourcing capture ISV, securing a $10 million round of Series B funding [see DIR 8/1/14]. You had Ephesoft, which has a purely Web-based cloud friendly capture platform, getting a minority investment from Fujitsu [see DIR 8/1/14]. You had capture ISV TIS buying cloud document management provider eGistics [see DIR 7/18/14]. And you had Box announcing workflow technology at BoxWorks and Dropbox revamping its Dropbox for Business; in the meantime, you had SharePoint experience some growing pains as Microsoft tried to reposition it as part of its Office 365 cloud offering.

As I said, there wasn’t a tidal wave of ECM cloud adoption, but rather a large number of smaller waves in that direction that combined can be equally powerful, especially if they continue to gain momentum in the upcoming year.

1. Lexmark acquires ReadSoft: Far and away the biggest story of 2014 was Lexmark’s acquisition of ReadSoft. The drama played out publicly over a period of four months, from May to August, with the Lexington, KY-based MFP vendor finally paying the equivalent of US $255 million for the market leading capture ISV, which is based in Helsingborg, Sweden. Counter bidding by Hyland Software drove up the price from Lexmark’s initial offer of $182 million.

By all appearances, the acquisition began innocuously enough when Lexmark announced its initial bid on May 6. Although the price seemed relatively low by capture market standards based on its multiple of 1.5x ReadSoft’s 2013 revenue, it did represent a record premium of 117% over market cap for a company trading on the Stockholm Exchange. Lexmark’s offer was unanimously recommended by ReadSoft’s board and included a provision that the board would only consider a competing offer if it was at least 7% higher than the Lexmark offer.

About a week before the acceptance period for the offer was scheduled to conclude, in mid-June, Hyland, probably Lexmark’s Perceptive Software’s most direct competitor in the ECM market, made a bid of approximately $198M, which was 8.7% higher than the Lexmark bid. Lexmark quickly countered with a $200M bid, because, well, they did not have to adhere to the same 7% premium.

Reading the ReadSoft and Hyland statements surrounding the bids led DIR to believe that Lexmark has made some promises regarding future employment of ReadSoft personnel that Hyland was unwilling to match [see DIR 6/27/14]. We also got the impression that Hyland was feeling a bit jilted by ReadSoft’s preference of Lexmark as a suitor. Apparently Hyland had been in talks with ReadSoft prior to the original Lexmark bid that had reportedly ended abruptly.

This all led to Hyland’s buying up of approximately 11% of ReadSoft’s outstanding shares, which it felt voided a 90% share requirement provision in Lexmark’s bid, and then making another bid of approximately $210M. Lexmark countered with a bid of $224M, which included an option to waive the 90% provision [see DIR 7/18/14]. Hyland took one more shot, which Lexmark answered with its $255M bid that included purchasing outright all the shares of ReadSoft’s two co-founders. This gave Lexmark a voting majority and effectively closed the deal [see DIR 8/22/14].

The bidding war was great for the capture industry, as it effectively increased the acquisition multiple of one of the market leaders to 2.2x revenue, a much healthier figure than the one associated with the original bid. The reasons for the acquisition on Lexmark’s side are clear. These include helping it reach its goal of $500 million in revenue for Perceptive Software in 2016 and increasing its European ECM presence. At the same time it helps Lexmark avoid the higher tax rates associated with repatriated profits by investing them in a European acquisition.

Hyland would also have benefited greatly from ReadSoft’s European presence, including its well regarded SAP integration in accounts payable applications. But, in the end it could not compete with Lexmark’s deeper pockets and whatever employment agreements were reached between Lexmark and ReadSoft. Curiously, at the same time it was acquiring ReadSoft, which has recently operated at around a break-even level, Lexmark was touting a goal of reaching 25% operating margins for Perceptive, which, for Q3 (minus some partial quarter numbers from ReadSoft), reported just 3.8% margins [see DIR 11/7/14]. Lexmark clearly has its work cut out.

Somewhat ironically, a couple months after it bowed out of the ReadSoft bidding, Hyland signed a partnership with Xerox. Part of the goal of that relationship is to help the ECM ISV expand its international reach [see DIR 11/21/14]. This should help even the playing field with Perceptive somewhat, although we still wouldn’t be surprised to see Hyland acquire a European ISV to supplement its efforts.
Those are some of the high points of our news coverage in 2014, a year which also included another successful AIIM Conference [see DIR 4/11/14], a strong rebound in Kodak branded scanner sales (now being sold by Kodak Alaris) [see DIR 10/24/14], Harvey’s Spencer Associates celebrating its 10th annual Capture Conference [see DIR 9/12/14], and Nuance buying MFP capture rival Notable Solutions.

Industry Pioneer Passes
Finally, we would be remiss if we didn’t mention that 2014 was also the year that we lost one of the industry’s true pioneers, Nien-Ling Wacker. Wacker founded Laserfiche in 1987, a company that has been one of the leaders in the document imaging and management space since I started working in the market in 1998. Despite the company’s consistent growth, Wacker did her best to maintain her personal touch in the business. Whenever I would see her at events, should always made time to hold a real conversation and never failed to ask how I and our publication were doing, even as I interviewed her about Laserfiche.

Wacker received many accolades throughout her career, including the AIIM Pioneer of the Year Award in 2002, National Luminary of the Year by the Mothers in Business Network in 2005, and City National Bank’s Entrepreneur of the Year in 2009. In 2006 she was inducted into the National Association of Women Business Owners Hall of Fame in Los Angeles. She is also remembered for her “Red Shoes” story, the moral of which is along the lines of “make hay while the sun shines,” which Wacker certainly did during her tenure with Laserfiche.

Nien-Ling’s husband Chris has taken over as Laserfiche CEO. Karl Chan has been promoted from CTO to president.

No Need to be Scared of Paper

As you may have heard, Thursday was World Paper Free Day. Officially, it is AIIM initiative that encourages people and businesses to not use paper for one day. I was Tweeted, I did not go paper free: 

Yes. I'm a heretic printing on @WorldPaperFree day! More in upcoming DIR Talk blog post. pic.twitter.com/GBNi5dWZQa
— Ralph Gammon (@DIREditor) November 6, 2014

I was writing and on a deadline for my newsletter--and to tell the truth, absent three or four monitors, I just find it easier to compile a story using multiple sources, when I at least have my notes on a paper. Then I can utilize my computer screen for additional research. And the proofreading....I did go paper free for a year, just to see how it worked, and it was certainly possible to publish the newsletter without printing anything. However, I think it is easier to do it when I can print certain items.

Yes, I think there are situations where paper is more efficient than electronic documents, which brings me to the major discrepancy I currently have with the ECM industry--Everyone is always trying to go paperless! All I hear is about how much more efficient and secure EDM systems are over paper. And this may be true on some levels, but certainly not all.

Let's start with security because I think that's more black-and-white. Yes, I think a properly controlled electronic document in an ECM system is more secure than a paper document. This seems obvious. I mean you can pretty much control who accesses it and changes it and track whoever sees it and provide an audit trail. It's harder to do this with paper. 

Of course, this doesn't quite explain why people in the healthcare industry consciously choose to use fax over e-mail. Apparently they still feel that analog is more secure than digital. I'll explore this more in an upcoming issue of DIR. 

As far as efficiency, I am a fan of paper for many collaborative exercises, as I think it's easier to share because in many cases it represents a least common denominator. I mean you don't have to worry about your paper being compatible with another system. And your annotations, notes, signatures, et al, work across systems as well. And if you need to contact someone in a remote location - a scanned image should work just fine.

Now, I agree that electronic processes are generally more efficient than paper ones - but I also firmly believe that there are times when paper can be more useful - and that we should take advantage of the fact that we have access to such great printing and scanning technology. In fact, I think we've reached a tipping point, where if managed correctly, it really doesn't matter if information comes in on paper or digitally, it can be dealt with just as efficiently either way.

In other words, don't be scared of paper, embrace it where it makes sense. Don't try and eliminate it, try to set up the most efficient processes you can that take full advantage of paper as a medium of communication. There is great document imaging technology out there. Don't be afraid to use it.

And of course, there are these guys.

Cheers.

10 Years of Capture Market Evolution

On my way to Harvey Spencer Associates Capture 2014 Conference, where I will be presenting for the 10th straight year. The industry has certainly evolved quite a bit in that time, as has the content of the conference. Here's a look at the agenda for this year's event. Here's an article I did previewing this special 10th anniversary edition of the event.

My presentation this year reflects the history of the conference, as Harvey has asked me to take a look back at how the market has evolved since 2005. I have a fairly detained presentation (that will be delivered in 15 minutes or so, so it will be action packed), but here's a preview of one slide, which includes what I consider to be the five biggest capture trends in the past 10 years:

1. Consolidation of Capture with ECM
2. Aggressive Movement of Hardware Vendors into Capture Software & Services
3. Emergence of Mobile & Cloud Technologies
4. SharePoint’s Emergence as an ECM Platform
5. Acceptance of Distributed Capture

 That's just a teaser. Lot more to come in my preso, such as a fairly detailed list of all the major M&A activity in capture market over past 10 years and my opinion on what it tells us.

Cheers.

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?

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.

Initial Thoughts on Lexmark's Offer for ReadSoft

The buzz this morning is all about Lexmark's a bid to acquire ReadSoft.

Here are some initial thoughts:

•  It appears like a done deal, as the acquisition has been unanimously recommended by ReadSoft's board of directors and, according to ReadSoft, "shareholders representing 22.9% of the shares and 41.5% of the votes have undertaken to accept the offer."
  
• It's a fairly attractive offer for ReadSoft shareholders considering it represents a 117% premium over the shareholder value when the market closed on yesterday. (The offer is $6.11 in cash for each Series A and Series B share of ReadSoft for a price of approximately $182 million, net of cash acquired.) ReadSoft shares closed May 5 on the Stockholm exchange (where the Swedish-based company primarily trades) at less than $3 per share, a value they had basically held for the past three months - which was about half of the company's 52-week high, reached last summer,
  
•  It's not that attractive of an offer if you consider that two years ago Lexmark paid $148M to acquire Brainware, a capture ISV about a quarter the size of ReadSoft. ReadSoft reported $117M in revenue in 2013 - although it has struggled recently with growth and profitability - which likely drove the share value down over the past year.

How do you integrate Brainware with ReadSoft under Lexmark's Perceptive Software practice? This is the $100M plus question and here are some thoughts:

• ReadSoft is clearly larger and more established, but Perceptive has certainly invested a lot into Brainware.
  
• Both ReadSoft's and Brainware's strongest market has been A/P, but I'm not exactly sure that they are direct competitors. ReadSoft really only took off in the A/P space after it acquired the Ebydos SAP workflow technology, and has since added similar workflow for Oracle Financials. Brainware always touted its ability to do "straight-through" processing based on three-way matches, which theoretically eliminates the need for workflows. So, Brainware's technology always seemed like a better fit in PO heavy environments where there were not a lot of exceptions, while ReadSoft was great when there were more workflow requirements. Of course, when Perceptive acquired Brainware, it touted the ability to introduce Perceptive's ImageNow worklfow into the equation and even things out a bit. I'm not sure how much that has been a factor. The bottom line, however, is that both companies compete primarily in the same horizontal market.
  
• Geographically, it seems that Lexmark is counting on ReadSoft to increase it presence in Europe, where ReadSoft generated approximately 70% of its revenue in 2013. Even though Brainware's development team is in Europe, its sales and marketing were always based in the U.S. This reminds me somewhat of Perceptive's acquisition of German ECM ISV Saperion last year, which has technology similar to Perceptive's legacy ECM platform, but was acquired to give Perceptive a stronger European ECM base.
  
• Along those lines, in our latest issue we ran a brief discussing how Perceptive was going to leverage its new Evolution Hybrid Cloud environment to potentially bring its two ECM platforms together. Perhaps it will eventually do the same with its two capture software platforms.
  
• Perceptive also gains the XBOUND document capture workflow platform, which ReadSoft acquired with foxray a couple years ago. A recent conversation with ReadSoft CMO Andrew Pery indicated that the foxray sales pipeline is improving and evolving as ReadSoft has continued to productize what had historically been software geared mainly toward customized one-off type implementations. ReadSoft had been targeting the service provider and mailroom markets with XBOUND - not necessarily a strong market for Perceptive historically.

Finally, I'm looking forward to catching up with top ReadSoft (and maybe Lexmark?) executives at ReadSoft's user conference next week.

Digitech Introduces New E-Forms, Upgrades Workflow

Digitech recently released a new version of its PaperVision Enterprise software, which includes new e-forms and improved workflow technology.  (Digitech's hosted ImageSilo offering is based on this platform.) These additions are designed to address the needs of Digitech's reseller channel, as well as end users, who previously had to rely on third party ISVs to provide this type of functionality.
 
Rebecca Wettemann, VP of Nucleus Research, had this to say about the new additions: “Many businesses have covered the basics of ECM and are now turning to additional options like workflow, electronic signatures, and e-forms to further boost the ROI from their technology investment,” she said. “Unfortunately, most have had to bolt together options from multiple vendors to get a complete solution. PaperVision Enterprise includes all three options as a seamless, fully-integrated suite, making it easier to share data between functions and easier to implement than a multi-vendor solution.”

Basically, with this latest release, Digitech is expanding the ECM capabilities it is offering its mid-market customers - a natural progression in any technology market.

Ease of use, network deployment highlight FineReader 12

(Article originally appeared in DIR 2/21/14 premium issue)

New network deployment capabilities, more accurate table extraction, improved efficiency features, and compatibility with Windows 8 are some of the highlights of ABBYY’s FineReader 12 OCR application, which was announced last week. “Our primary objective when we do a product refresh is to continue to increase accuracy,” said Angel Brown, director, product marketing for ABBYY’s OCR products. “We also want to add features that make the software easier to use.

“Also, while we’ve been making inroads with FineReader focusing primarily on the SOHO and SMB space, with the new release of our Corporate Edition, which has network installation capabilities, we expect to move deeper into the small enterprise and departmental level at large enterprises. End users now have the capability of rolling out systems for potentially thousands of users, and we will be offering volume licensing discounts. We’ve sold a lot of single user licenses over the years to organizations where we plan on going back and turning those into multi-user sites.”

FineReader 12 Corporate Edition starts at $399 to work with a dual core processor and $599 for a quad-core version. FineReader 12 Professional lists for $170. CDW, Ingram Micro, and the ABBYY direct store are the three most popular sales channels for the application.

Leveraging ABBYY’s ADRT (Adaptive Document Recognition Technology) IDR, FineReader 12 improves table recognition by up to 40%, which means users have to spend less time tweaking their results. Users can also save time by extracting items like tables and quotes without having to apply OCR to an entire document. Along those same lines, users can now extract text from single pages, while OCR processing of an entire document carries on in the background. 

Windows 8 compatibility means that the application can now leverage the latest PC touchscreen features. FineReader 12 Professional is available now, with the Corporate Edition due to become available next month.

For more information: http://bit.ly/FineReader12PR