OpenText bid to Acquire Documentum
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On this episode of Just Clarity, Connie Moore, Alan Pelz-Sharpe, and Jake DiMare talk about the pending OpenText acquisition of Documentum.
Jake Dimare (JD): Welcome back to Just Clarity. On this episode, I’m joined by Alan Pelz-Sharpe, Lead Analyst at Digital Clarity Group, and Connie Moore, the head of our Research Department and we’re going to talk today a little bit about the pending deal where OpenText is seeking to acquire Documentum.
So why is this such a big deal for this industry sector? Maybe Alan if you’d like to go first.
Alan Pelz-Sharpe (AP): Sure. It’s a big deal because, we’ll two reasons: one, it’s pretty lucrative sector of the market as a multi-billion dollar sector of the market, but the biggest reason I suppose is because there’s just not that many players left, so I mean this is really heavy consolidation. OpenText has been buying a lot of companies over the years. It recently got all the ECM assets from HP, and now it’s essentially taken on its next biggest rival Documentum, so it’s a massive consolidation.
Connie Moore (CM): Yeah and if you were to go back 10 years ago or some hypothetical number of years looking backwards, you would have never expected OpenText to buy Documentum because Documentum was just the behemoth in the Enterprise Content Management space with a very strong footprint in life sciences, pharmaceuticals, manufacturing, energy, and Documentum products were installed for very mission critical applications that the lifeblood documents of an organisation were often put in a Documentum solution, and they helped create the document management market.
So it’s interesting to see how things have evolved and what really happened, I think Alan you’ll agree, Documentum kind of disappeared when EMC bought them and that never totally made sense in terms of pursuing a strong ECM strategy in the market at large and they never really got the synergies that EMC thought they would get and as a result, Documentum’s, I don’t know shine, its brightness in the market began to dim just because it got lost a little bit.
JD: So I think I read someplace and maybe you could tell me if this is true, is this sort of the last move in the mergers and acquisitions of the original enterprise management players.
AP: It’s probably not the last, but of the original ones there’s not that many left anymore. So Lexmark did a lot of acquiring, and now it is going through an acquisition by some Chinese equity firm, but no there’s stuff some out there. I mean there’s Alfresco, there’s Hyland, there’s M-Files, I mean there’s a good list of them still out there. I think the challenge for them is not disappearing because in most cases they remain solid, profitable companies. The bigger challenge for them is actually finding buyers because you have the rise and the continued rise of people like Box on the file sync and share side of things which has really disrupted them heavily.
CM: And I would say the Documentum deal is the last really big ECM legacy acquisition. There are smaller companies that will be acquired or will find their way to success by having vertical strategies and so forth, but this is really kind of a last one of the legacy ECM players. Box is as Alan mentioned is a real up and coming vendor that one has to wonder if and when IBM is going to buy them because they’ve certainly struck up a partnership that’s working quite well, but we’re running out of big players and the next thing I can envision is somewhere down in the future maybe OpenText itself gets bought by somebody who’s a giant, but you know that’s pure speculation and based off no facts what so ever.
JD: Excellent. So this deal seems to be getting a lot of bad press, why is that?
AP: Yeah it’s interesting. I was sort of looking through the press again today, just quickly in preparation for this and there’s sort of two sides to it. If you look at the investor press, they like the deal, and in fact, I haven’t check it in the last few minutes, but OpenText price took a nice bounce upward, investors love it, and not surprisingly because OpenText is the gift that keeps on giving to investors. It might not be pretty at times, but it’s pretty consistent in terms of growth and profitability, so the investors love it, but you know I think as Connie was saying, Documentum, it wasn’t actually the first, but in many ways, it epitomized the document management industry. It very much shaped it, and so I think the people whose careers have been in ECM, this is just the… I don’t know, it’s just a big blow to their egos in the sense. You know it’s like, “Where’s my industry gone?” So yeah it’s been very negative, but if I have to be honest here: On the one the hand there’s sort of, “Oh my gosh Documentum’s gone, what’s happened to our industry?” On the other hand, there’s a genuine concern that OpenText hasn’t really had the best of history when it comes to acquiring firms. It’s profitable, but it hasn’t got a great history of investing heavily into R&D and moving things forward. Rather it’s got a history of just keeping going with the maintenance revenue. So I think many people are very worried that that’s exactly what they’ll do with Documentum.
CM: Well you know OpenText has been referred to, even by the CEO of OpenText as previously being a Frankenstein company meaning that they acquired something and bolted it on, and they acquire something else and sew another piece on, and you get the image of these piece parts that may look good by themselves, but when they’re all bolted together are just really strange, and I think that over the past two or three years they’ve done a better job, a much better job of having acquisitions, post-acquisition strategies and approaches and product roadmaps that make more and sense and prior to that, it was all about you know, the customer base and the maintenance revenue, and it’s still about the customer base and the maintenance revenue, but I think they’ve been a lot more thoughtful in terms keeping products alive, not just killing off their acquisitions.
I think this particular acquisition is accretive. I think that there will be a lot of value in them keeping the Documentum products up to date and having a future for them, and not shutting them down. I think there are problem areas, like I am in the BPM space, I monitor that, and you know, OpenText has gone through a really tough road on figuring out its BPM strategy yet. It bought Metastorm, it bought Global360, they were direct competitors, it has its own BPM initiative underway, it then bought Cordice, now we’re talking four overlapping conflicting products, and they actually closed down three of them and Cordice is their strategic acquisition for going forward on BPM which I think make sense because it’s a very strong offering, particularly in integrating systems and data and for complex processes, but now EMC always Documentum, always kept a very strong case management product going, very, very interesting product.
So here they are, they have got overlap again, but I do think that there is a way to make both of those products co-exist, meaning a strong case management offering and a strong BPM integration offering. So my opinion is that OpenText gets negative reviews by a lot of people for the same reasons Alan said. They’re worried about their industry they’ve been in for years and years. They’re worried that somehow OpenText will screw up the integration, but I think that they know what they’ve got. They’ve got a jewel of a company if this deal closes and I think they’ll be very careful how they handle it for all sorts of reasons.
AP: That’s right, and I think the other thing that OpenText, and I think that OpenText has already hinted about this, as Connie said the last few years they’ve been going a great job, I mean there’s a new, well it’s not that new now, but there’s a new sort of set of executives that have come in the last few years and they have a different vision for OpenText which is a good one, but one of the key elements of that strategy which they’ve been putting forward is less focused on the individual pieces of technology and more focused on the industry they’re targeted at.
So if they carry on doing that, it may not be such a bad thing to have two or three different ECM systems if they’re targeted and optimized for different sectors and as Connie said, Documentum, for example, has a really strong footprint in life sciences and pharmaceuticals, etc, and OpenText has a really strong footprint in legal for example. So you know it may be that what we’re actually seeing is a maturity there that people and I think this goes to the core of it, people aren’t really going out anymore and buying an ECM system, they want a business solution.
So maybe that’s one of the ways forward for them here, so they don’t have to integrate everything together, but they can point bits of their portfolio to different industries and optimise them for those industries.
JD: So a lot has been made about the fact that the sale price now in 2016 was almost the same as ECM paid for Documentum in 2003. What do you think’s going on there?
AP: I think just the times have changed. Let’s be frank; EMC way overpaid for them the first time around, simple as that right? But in the same time, lots of people were overpaying for lots of things back then. These were 2003 multiples or acquisitions in the tech sector were quite high, they’re not anymore, and Documentum’s a legacy company like many others now and actually, I think OpenText has paid a decent price here. It’s not a bargain. They’re paying roughly three times revenue, 2.7 I think it is, or something like that. That’s a good going rate, and I say that because OpenText has a history of buying distressed companies at a fraction of the price they would have once been at. This is not one of those deals, I mean they paid the proper market price for Documentum.
JH: What do you think this means for Documentum customers?
CM: Well you know I think it means a lot of good things. So just recently we did research and wrote about extended ECM which is integrating your ECM solution with business applications like you know whether it’s HRM Human Resource Management or the big granddaddy is Enterprise Resource Planning, that was sort of the first for extended ECM or CRM, and I think that OpenText has always had a big competitive advantage in how it’s approached integrating content repositories with those packaged applications and they can very quickly and easily integrate the Documentum products with those business apps. So that extended functionality, significantly extended functionality that Documentum customers would get.
AP: I agree with you. I’m quite positive about the whole deal. I suppose I don’t know if it’s just my Scottish heritage or something that I, and at the same time I think some of the negative press on this is based on fact. So we do have to watch and wait. I think we’re all in agreement here that OpenText has paid good money for a good product, set of products actually. Info Archive is very good, the new Leap applications, etc. , they’ve done a lot of good stuff here, but they also have a history of not necessarily doing the right thing. So I think you have to watch it with a little bit of caution and I did actually say to Documentum directly on one of the briefing calls this week that the best thing you could do is really announce as soon as this deal closes, we’re investing a chunk of change into R&D for Documentum and put a lot of people’s concerns at rest.
JH: Very good advice. What about OpenText customers.
AP: I don’t see them being impacted much do you, Connie?
CM: Well, no I don’t see them being impacted at all. There is that BPM overlap, but I think to pin it on how they approach it, that could be something added to the BPM portfolio that is an attraction for OpenText Customers. So I think that’s a plus. Otherwise I don’t see them impacted that much. I do think that there are some non-product advantages that will open up new opportunities for customers in that Documentum had a pretty significant global footprint in some of the markets, geographic markets that OpenText didn’t have a stronger presence in and so that’s going to become a new channel for OpenText products moving into new geographic areas, China in particular, and I think that we’re gonna just see maybe new service provider opportunities that customers will have a much greater choice as they integrate their partner channel. Both companies have put a lot of focus on service providers.
So I see some opportunities not so much in the product area as some of these other, but still tangible benefits.
AP: Yeah I agree with Connie there. The OpenText customers, it’s good and for OpenText, new markets etc. I think though that Connie did touch on one of the potential problem areas here. I mean OpenText has always been an inquisitive company, but bringing onboard all of the HP stuff, you know from Interwoven and beyond and now this, and plus all the BPM acquisitions they’ve made and the integration acquisitions they’ve made in the last few years, I mean this is a lot of different channels now, and I just can’t imagine anybody has a bigger channel management headache frankly, than this. I think it’s a great opportunity, but wow this is going to be a tough one to manage.
CM: It is going to a really tough one to manage. I hope that they know what they’re up against. I hope that they see that this channel management’s going to be one of the more strategically important issues they have to face.
JD: So I guess this is assuming the deal does go through. What are your opinions both of you in terms of whether or not the deal will be successful?
AP: I can’t see any reason why it won’t. I think if it was another industry and if this was in the U.K. for example, I’m quite sure the monopolies people would be involved right at this point, but I mean it’s a Canadian company buying an American company, and I can’t see any reason why it won’t go through.
CM: Yeah I think the deal will go through without any problems.
JD: Excellent. Well, that’s all the questions I have, any closing thoughts?
CM: I guess we should sort of take a look at upside downside. So the upside is really substantial regarding product offering for both sides. There’s going to the benefits going both ways. There’s going to be a geographic expansion, partner expansion, and really putting OpenText squarely on the map, it was before, but even more so now as a dominant giant in the ECM market, and this market has consolidated.
Some of the downside. We mentioned partnerships, how much will they invest in the Documentum road map and how much will they feed that rather than starving it. I think they’d be nuts to starve it, so I have to think that downside is not too likely.
One other thing I can think of is that every time OpenText makes an acquisition, and they are an inquisitive company, it can really throw you for a loop trying to figure out how is this going to fit in, and there are some players out there, some smaller players that are acquisition candidates, but they have to very, very careful, their acquisition strategy because it’s just getting harder, and harder to make sense of bringing in new piece parts. So I think they need to really think those things through as well.
AP: Yeah I agree and my only sort of closing thoughts if you’d like. One for me it was a surprise to me if I’m honest, but when the news came through, and it was very much expected. I had a tip off the previous week it was going to happen, but for me at least it was sort of the end of an era. My career has ridden the whole ECM thing; it’s not the end of ECM, but it is definitely the end of an era, and I think it’s not just me, you know the blog post I popped up our website earlier this week. I mean it went off the charts regarding people reading it which is, I didn’t expect, but yeah a lot of people were really invested at some level in Documentum. It was a ground breaker in its day. It leads the way for a long time, and I think people are trying to make sense of, “what happened to my industry? It’s gone.”
CM: And you know, OpenText is trying a new monicker, the EIM market which I don’t really like.
JD: What does that stand for?
CM: It stands for Enterprise Information Management and it’s the idea that there is this new market for products that span or a portfolio of products that span structured data to unstructured data, and I don’t think the structured data people particularly agree with this because the whole data stack, and the whole big data you know, thing that is not going to die down for a long, long, long, long time, it’s kind of hard to see those companies wanting to deal with the kind of content issues the ECM market has addressed.
So I’m very lukewarm about the EIM market, but that’s what OpenText has carved out for itself, and that’s a big hurdle.
AP: It is, and I think Connie actually just touched, and maybe this is a good tease just to leave it on. I actually heard just this week, and I’ve not heard of this before, but this very week I heard of somebody who’s building out an ECM system in Hadoop. So…
AP: So maybe there’s more twists and turns to come?
CM: And maybe we’ll be talking ten years from now how our beloved DIM market has matured. So we’ll leave it at that.
JD: Well excellent. Thank you, Alan and Connie, and have a lovely weekend and thank you to our audience.
AP: Thanks very much, bye.
CM: Thank you.
You have been listening to another episode of Just Clarity. Produced by the team at Digital Clarity Group. For more information on the topics we discussed today or the subject of customer experience management, please visit us at digitalclaritygroup.com