Document Centric BPO

Dell buys Perot Systems then Xerox buys ACS. Two deals in two weeks by two big players in the hardware business, moving into the BPO market, reflects the interest Document Boss have seen growing for BPO in the ECM, BPM market.

Five years ago Document Boss would not have bothered listing BPO in our positioning statement but now the document centric BPO sector is a big focus.

Looking back to the Hewlett-Packard buy-out of Electronic Data Systems Corp. for more than US$ 13 billion last year, maybe we are seeing the first signs of a pattern. The crystal ball gazers say the BPO market is expected to grow at 5% per annum. Well we all know how accurate the analysts in our industry have been over the years. Just go find some of their forecasts from five years ago if you want a chuckle but I predict that maybe they could be right for a change.

Oh my god! Does this now mean that I am also an analyst! Please no, help! Save me!!!!

Internet advertising now bigger than TV in the UK

Based on figures from the Advertising Association and WARC, a report from the IAB and PricewaterhouseCoopers shows that internet advertising was the only sector to grow in the first half, taking a total of £1.75bn.

For the first time ever, in the UK, internet advertising has outstripped advertising on TV. Interesting maybe, but how does that effect the ECM, BPM or BPO sector and, more pertinently, why am I bothering to mention it on this M&A blog??

Two reasons I mention this in an M&A blog:

1) Marketing has changed massively in just the past 18 months and the majority of companies from our sector are at least five years behind. They see and hear the changes but they do not react - Knowledge without wisdom. There are so many channels of communication and routes to their prospective clients but very few companies in our sector use them effectively . The majority in this sector are operating a sales led revenue process when they should be marketing led. They still place great emphasis upon sales people and too little upon their marketing. Sales people are still an integral part of the process but more and more companies need executives who can communicate effectively through a variety of media to their target audience, leveraging the great marketing tools that are now available.

2) If you want to maximise your return in the M&A world then you must become adept at marketing (as well as all the other sections of the equity wheel) and embrace the new means of communication. If you are buying, then, to maximise your investment, you need to look at that company and treat it like a raw diamond plucked from the ground. What skills, assets, technology, network, synergy has your company got that can take this raw diamond, cut and polish it to ACCELERATE their company EQUITY VALUE. How does your 1+1 =3? If it doesn't, where is your return? Too often the critical eye is upon the acquired company and not upon the acquiring party. It is a question all acquirers should ask themselves. "How will we add value to that company?" How will we make it better, stronger, more valuable.

If you are working towards a sale then you need to be aware of the value first class marketing can add to your company. Don't tidy up your website 2 months before you want to sell the business and expect it to add equity to your company. However, if you give yourself time, you can create an EXIT PLAN so that you can generate a constant supply of leads to your sales force and you have a replicable process, then you have equity value. You will also have increased your historical revenue in the lead up to your sale, which also adds worth.

The reality is that most companies in our sector either overlook the marketing piece of their business or are just out-of-date in their approach, unable to leverage the tools and communication channels that are available to them and instead, expend their energies whipping their sales force for lack of sales that is a result of THEIR poor marketing.

With the internet and the increasing number of options available to companies to convey a message, marketing is more critical than ever. Marketing will continue to increase in importance and the sales process will shrink.

Focussing exclusively on sales to the exclusion of marketing is a bit like a builder building a home by piling brick upon brick without mortar. It is fast and for a short time looks like they are getting results but........................................ ultimately, it ends in tears.

GOTCHA: Kofax Acquires 170 Systems

LATEST NEWS:

Kofax announced today the acquisition of 170 Systems. 170 Systems’ audited financial statements for the year ended December 31, 2008 reported revenues of $28.1 million, a net loss from operations of $2.6 million and gross assets of $20.9 million. During the latter part of 2008 the company restructured its operations with the goal of approximately breaking even on the same level of revenues during 2009 and, on an unaudited basis and excluding expenses relating to this transaction, the company achieved that objective during the first six months of 2009.

Kofax expects to effect additional cost savings made possible by its acquisition of the company between now and December 31, 2009. To acquire 170 Systems, Kofax paid total consideration of $43.0 million or net consideration of $32.9 million after deducting $10.1 million of cash held by the company. Of the total consideration $29.7 million was in cash, $9.0 million was in the form of a note payable due on September 4, 2010, bearing interest at the rate of five percent per annum and guaranteed by Kofax’s bank and $4.3 million in the form of a hold back, with $2.3 million to be released on September 4, 2010 and the remainder on September 4, 2011, subject to certain indemnification terms and conditions.

So based upon what we currently understand are the details of the deal and assuming a mid - 2009 valuation:

Revenue multiplier 1.1X revenue
EBIT multiplier n/a negative earnings
Earn-Out ~15%; $4.3M

This shows that companies that are not yet showing positive earnings can still be sold at ~1X revenue, assuming their is a strategic fit.In addition, 170 had $10M cash on hand, which they can can use to fund growth.

From a competitive market standpoint this deal maybe underscores a trend by the larger capture, imaging & IDR technology companies to move further up the value chain into business process applications markets. Who will follow and what effect might this have on the Kofax reseller network?

The Changing Tides of Time and Why Success Doesn’t Last

"Time and tide wait for no man" Geoffrey Chaucer

One of the most stimulating aspects of working in this industry (EDM, ECM, BPM & BPO) for me, is the constant rate of change. Technology matures, market tastes change, markets merge, new technology obliterates old technology and even sales techniques change as does the thinking of your customers. Therefore, what once brought you high levels of revenue may not now work. Just like the tide affecting the coastal landscape, then so does time have an effect upon the business landscape.

So what does that mean to senior executives and why should I find that stimulating? Well for one it is inevitable and there is no point in fighting it, so I make the decision to enjoy the journey and accept that I have to change. Accept that you are on a never ending journey of discovery and learning. Don’t try to hang on to what once worked but now is no longer valid.

There is no such thing as the perfect process or absolute performance. What worked last year may not work as well this year and in some cases may not work at all. Document Boss is in a very fortunate position that we see the vista landscape of our industry across the world and see for ourselves the changing sands of time and the effect it has on companies. Some adapt and prosper some struggle and die. What really matters is how you are performing NOW! Do you know and can you measure it? How are you performing relative to the other players in your marketplace? Has technology or the economy changes moved your prospective clients nearer or further away? You need to become better than the competition at understanding your customer requirements and be in a sector that has life. You need to check regularly that you are not in a sector that has lost touch with the moving desires, latest requirements and thinking of your intended clients. If it has then get out quickly but jump in to a new related sector with knowledge and insight and not leap into a dark hole of hope.

Nothing works all the time in all circumstances. Right strategy is important as is right execution, but so is luck. The role of a business leader is to be alert to these changes to manage the probabilities of change and be quick to capitalise on opportunities as they arise. A good example in our industry of a company that adapted well was Tower Technology. They understood their market, had a very good customer base, excellent domain expertise in the Financial & Insurance market, were close to and understood their customer, had replicable solutions, a motivated team with a good culture and a strong service and maintenance business. Several times during their development they had to adapt and change which they did very successfully and were finally acquired by Vignette.

A fast growing UK Document Outsourced service company, well positioned in the market and positioned for growth came unstuck because they were too heavily dependent on large volume, fairly low profit conversion jobs which meant they needed to "feed the factory"...they needed to move up the food chain into hosting etc. They failed to pull in new business and were very vulnerable if they lost one or two major contracts, which of course they did. Despite achieving some substantial revenue on the back of a couple of big contracts they failed to change or leverage their position and ultimately imploded.

Humility in good times and learning in bad times is a healthy attitude and will help to ensure you don’t become down trodden by not taking downturns personally. There are a whole host of elements of both success and failure that have absolutely nothing to do with you, your efforts, or your character.

"Nurture your mind with great thoughts for you will never go higher than you think"

Benjamin Disraeli

You need to be alert and positive minded to the changes and be open to change. That in itself can be a test, to be able to let go of what once made you successful. Initially it can feel like a step in to the unknown. However, you have the opportunity to test your theories as you gather latest information. If you would like assistance to “Keep your finger on the pulse of this industry” see Boss News http://tinyurl.com/cu523j

It’s not all a science there is also some art otherwise successful businesses would be run by boffins in white coats with mathematical formulae. However the scientific methodology of test, observe and replicate will put the odds firmly in your favour. Learning from the recent mistakes of others and testing provides huge benefits in your journey of success.

Testing on a small scale and keeping your eyes and ears open will give you more than a fair chance for the health and growth of you and your company. If you can do that and accelerate your long term equity value, then you are a true and valuable business leader. Nothing stays the same over time. Piece by piece the sands move and so should you but with thought, information and design.

Software AG Announces IDS Scheer Acquisition for €477 million

Software AG have announced their intention to takeover Business Process Modelling company IDS Sheer. For further details.

Software AG will purchase the outstanding shares of IDS Scheer in a cash-and-debt deal worth up to €482 million. IDS Scheer is a business process consulting firm with 19% of revenue contribution coming from licensed software products. In 2008 IDS Scheer had revenues of € 399 million.

The merger is subject to approval by German business regulators. Software AG has agreed to pay €15 per share to IDS Scheer shareholders in a voluntary public tender offer. The total value of the takeover offer amounts to approx. EUR 482 million. The projected accumulated annual revenue of IDS Scheer and Software AG together would be around 1.1 billion Euro.

The supervisory board of IDS Scheer AG, have committed to accept the takeover offer for all shares in IDS Scheer AG held by them, i.e. a total of 15,332,622 shares. Software AG expects to close the transaction in the fourth quarter.

Questions:

1. What impact will this acquisition have for the BPM sector?
2. There are over 300 BPM / Workflow software vendors globally many small and medium sized companies. Who will be the new stars and who will suffer?
3. Will this acquisition be a catalyst for a series of acquisitions in this sector?

Post your thoughts in the comment section of this blog or feel free to send me an e-mail at mark@documentboss.com

Perceptive Software Continue Growth Trend

Perceptive Software continues impressive levels of growth that are well above the industry average despite the recession. CEO Scott Coons said “Perceptive Software continues to grow at four-times the industry average, as we have for a decade”…. “Were pleased that license revenue in the third quarter was 24% higher than the quarter prior.”

Their recurring revenue maintained a record-high 35% of total revenue
License revenue in the third was higher from January to March 2009 despite worsening economic conditions.

Bravo Perceptive! If they can continue with such levels of growth then it must give hope to other companies in this sector that the economic conditions do not have to result in reduced performance.

The Seven Habits of Highly Successful Acquisitions?

Unfortunately, human nature and our general "busyness" dictates there are more cures sold than preventive measures taken. Whilst we have our head down like a worker bee, making ourselves busy, it is easy to forget to look up, ahead and plan.

Prevention is always a better alternative than cure but look at data security. How much money changes hands after there has been a disaster? How many gym memberships are sold once the person has already put on weight? How many health foods, potions and lotions are sold to people who have already had a health scare? How many security home alarm systems are sold to people once they have already had their home burgled?

Over 50% of acquisitions in our sector fail to reach their business objectives because they do not take the necessary actions in advance to increase their likelihood of success. Yet time and time again companies enter their acquisition journey poorly prepared. The result is that acquisition success has worse odds than flipping a coin, yet often costs millions to undertake.

The true failure rate is probably closer to 70% but due to many companies not having clear goals there is nothing to compare the results against. Often, goals are allowed to drift during M&A activity, as companies behave in an opportunistic manner, shoehorning requirements in an effort to save time, save costs, “bag a bargain” or just so that they can show some results for all their management time and effort as their team becomes more and more frustrated while the process drags on and on….…….

Stephen Covey’s advice in his book, “The 7 Habits of Highly Successful People”, was: Number One: “Begin with the end in mind”. This is a great first step in the all important FORMULATE stage of any M&A activity. (The 5 stages in an acquisition are Formulate, Locate, Investigate, Negotiate, Integrate)

Beginning with a clearly defined objective and goals will aid thinking and help to keep yourself and team members on track when discussions start to become complex. It is so easy to become embroiled in the detail, counting the grains of sand, that you lose sight of the bigger picture that should be giving you direction in everything you do. In order to achieve a goal a person must know where they are going.

If I was to list the 7 habits of highly successful acquisitions, then I would probably write a book around the following tenets:

1. “Begin with the end in mind” – I hope Stephen Covey would excuse me on this one but it is so important. Know your acquisition outcome from the start. What should acquisition achieve for you.
2. “Ensure you have a clear understanding of who and what you are” – this is the who and what type of company you are currently. Where are your strengths? What is your current positioning and what is your value proposition?
3. “Have a true and clear view of your competition” – if you are planning an acquisition, this is no time to overstate your strengths with a ‘Pollyanna’ view of your world
4. “Have an M&A strategy that fits with your business plan” – surely you would say this is common sense? I would agree, but having an M&A strategy really fit the company’s business plan is not as common as you may think.
5. “Create a set of SMART acquisition objectives” - be Specific; make them Measurable, Agreed upon within your team, Realistic and within a Time-frame.
6. “Acquire with the insurance of knowledge and experience” – many acquisitions fail because they try to operate in areas that they do not know well or where they have insufficient data or expertise.
7. “Don’t suffer from a keyhole vision” – ensure that you have a clear and unobstructed view of the businesses that operate in the sector in which you intend to acquire. So many acquisitions set out in pursuit of a few known competitors and then try to shoehorn them to make them fit. You need to have a good overview of the possibilities so you get the “Right Fit”
   

Actually, if I were to write a book on the habits of highly successful acquisitions I would not be able to limit myself to just 7 main points. It would probably be 4 x times as long. However, “The Twenty Eight Habits of Highly Successful Acquisitions” was not as catchy a blog title and would take a lot more time to write and I doubt many reading this blog would have reached this point.