Hummingbird’s board has approved the deal, but it is still subject to approval from Hummingbird shareholders, who will vote at a special meeting in late September. Waterloo, Ontario-based Open Text expects the deal to close in early October, pending court and regulatory approval.
The merged companies will form one of the vendors in the content management software arena, which also includes EMC/Documentum, FileNet, and Stellent.
Open Text beat off Symphony’s original $26.75 per share bid in late May for Toronto-based Hummingbird, and Open Text stepped in with a $27.25 bid in early June. That offer represented a premium of 20.5% over Hummingbird’s share price on May 25, 2006, which is the day before it had agreed to be bought by an affiliate of Symphony.
Open Text’s clinching bid comes in at a premium of 4.1% over Symphony’s offer. But negotiations have run far from smoothly. When Symphony’s offer was first announced publicly, Hummingbird’s board came under fire from enraged investors for not entertaining other competitive bids. Many felt that Symphony’s price was well below what the company was worth.
When Open Text stepped into the frame with its raised bid, Hummingbird’s board initially expressed concern that pursuing Open text’s raised bid would create risks for shareholders and company as it was in advanced negotiations with Symphony. The board issued a statement in July urging investors to reject Open Text’s unsolicited offer.
However, at the start of August it told Open Text that its bid would have to be substantially more than $27.25 per share. Open Text responded with a $27.75 per share bid and the two companies then entered into talks that resulted in the agreed $27.85 price.
Hummingbird has grown up around a diversified product line gained though several acquisitions, and includes PC and legacy connectivity, business intelligence, extract, transform, and load (ETL), portals, and content management. About 33,000 companies worldwide use its software. However, the company has increasingly focused on the enterprise content management (ECM) market for the past three years.
Open Text, meanwhile, has been more sharply focused on content management and has fleshed out its flagship Livelink collaboration platform with over 25 technology acquisitions over the past decade to strongly position itself in the ECM market. It has around 13,000 Livelink customers in 114 countries.
The company certainly has gained a reputation in the sector for being a serial acquirer as part of an attempt to transition from being a platform/tools vendor towards being an applications vendor. While it has done a good job so far of absorbing smaller technology-firms, it has recently run into trouble absorbing Ixos Software AG, a German content management supplier acquired in late 2003, mainly due to cultural, legal and geographical issues.
The geographic proximity of Hummingbird should make things smoother for Open Text this time round. But the company still faces a number of significant integration challenges, not least picking through two overlapping ECM suites that have been directly competitive in the past.
Certainly, the acquisition offers Open Text a greater scale in the ECM market, which is now the target of larger vendors like Microsoft, Oracle and IBM. Microsoft’s forthcoming Sharepoint 2007 system, in particular, will put increased pressure on traditional ECM vendors.
Clearly, Open Text needs to implement an aggressive plan to realign both businesses to offset declining license revenue that should be expected over the next 12 months due to customer hesitation over new licenses and upgrades. Open Text is also coming off a shaky financial period that many investors attribute to sticky integration of Ixos that has sent its share price southwards
It is likely that Open Text will cull off low-profit Hummingbird lines (possibly Hummingbird’s connectivity business) and be forced to redesign its sales and marketing strategy. Overall, Open Text will be challenged to execute new partnering and solutions strategy while at the same time integrating the product offerings of two companies into a single ECM product set. Both companies do not have great track records in terms of building and leveraging partner channels that effectively.
Open Text’s swoop also seems to reflect a wider consolidation trend in the ECM market; one that perhaps follows the way in which the enterprise resource planning (ERP) market has evolved over the past several years or so, with private equity investors snapping up several publicly held firms.
