Apr 22, 2016
On Monday, Open Text announced it has entered into a definitive agreement to acquire most of HP Inc.’s Engage software portfolio for $170 million. However, HP made only the briefest of statements on the sale and the announcement was not even posted on the central HP news webpage.
Included in the sale is HP TeamSite, a multi-channel digital experience management platform for web content management, HP MediaBin, a digital asset management solution, HP Qfiniti, an intelligent workforce optimization solution designed to improve enterprise contact center management, as well as, HP Explore, HP Aurasma, and HP Optimost. Along with the intellectual property, OpenText will receive the corresponding HP customers, partners, and HP employees. The transaction is expected to be finalized by the end of 2016 and is subject to regulatory approvals and closing conditions.
Open Text has made acquisitions a major priority and has recently doubled-down on its plan to spend $3 billion as part of this strategy. This $170 million acquisition is really just a small portion (<6%) of the overall amount OpenText plans to spend. For a company that has had major growth in recent years and is still growing, with a desire to spend $3 billion on acquisitions, this purchase seems to be a minor portion of a much larger strategy.
It’s worth noting that just a week ago, Open Text announced the availability of Open Text16 which was positioned as one of the most major release in the company’s history. It will be interesting to see when or if, (likely somewhat down the road) any components of these products make it into the OpenText platform.
Yet, there was a clear near-term motivation noted in the OpenText announcement—these software solutions “generate between $85m and $95m of annualized revenues, be immediately accretive and be on the OpenText operating model within the first 12 months after closing.” OpenText has deployed this strategy—acquiring companies with strong service and license annuity streams for the purpose of using the install base as cash flow engines—several times before.
Probably the most notable aspect on the HP side of this transaction is what they did not sell. HP retained two parts of the Engage portfolio—HP Hub (LiquidOffice and Teleform) and Exstream. Hub is a solution that brings together multichannel capture, content workflow, and analytics. HP Exstream is a multichannel customer communication management (CCM) solution. These solutions align with the document solutions portfolio and HP’s MPS strategy, however it is likely HP is deciding on whether to invest more in these or also divest.
There is no reason to fundamentally over-complicate the sale of these HP assets. We view it as a convenient arrangement for both parties. HP Inc. has previously announced plans to downsize its workforce and narrow its focus on its core technologies. As noted in their statement, “The divestiture is consistent with our plan to streamline operations to focus on our core, growth, and future strategic framework.” These Engagement portfolios were always a strange fit for the post-split HP Inc., and without major investments they were not going to (if ever) find new customers in the market. Thus, a sale now gets HP Inc. some of the much needed cash and fits the company’s wider strategic alignment. We see no significant reason to contradict the clear signal OpenText made in its press release about the revenues they believe are possible from the acquisition. OpenText has experienced maximizing revenues from sun-setting software, and may be able to find some useful intellectual property along the way.
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