The document capture industry was startled last week by the announcement that Lexmark has merged/acquired Kofax for approximately $1B in cash. Since Lexmark has been on a document capture acquisition spree and Kofax was known to be “in play” why was this announcement surprising? Two reasons:
- It was only two months ago (1/15/2015) that Kofax announced a global partnership with Xerox, a direct competitor to Lexmark in the Managed Print Services (MPS) sector. Xerox was also presumed to be the most logical suitor for Kofax, leading to the conclusion that the Lexmark choice was more about $$$ than a strategic fit.
- Lexmark had already acquired ECM vendor Perceptive Software (2010) for $280M, Brainware (2012) an IDR vendor for $148M, and Readsoft (2014) a document process automation company for $251M. The addition of Kofax, a direct competitor to Brainware and Readsoft in the lucrative invoice automation market feels like this is a bid to acquire customer-base/hit a revenue target rather than a pure technology/synergy investment.
Examining the two companies, it appears that Lexmark already has a number of disparate technologies to resolve, include BPM, ECM, IDR, document capture, eInvoicing and of course Managed Print Services.
Kofax has also struggled to resolve an amalgamation of acquired technologies. Thus, the Kofax acquisition adds overlapping technologies with process automation/workflow in Total Agility, Invoice Processing from the company’s 2009 acquisition of 170 Systems, core capture and image enhancement products, as well as smaller acquisitions around business intelligence and eSignatures. That’s a lot of technologies, platforms and strategies to digest, merge, purge and position.
In many ways this is a prophetic “back to the future” moment for Kofax. In 1999, European scanner distributor Dicom—in an attempt to expand beyond its core, low-margin hardware business—acquired Kofax. By 2011 Kofax (the renamed Dicom parent company) divested itself of the hardware business for about $23M. This week the software entity has been acquired by an entity known for hardware—printers and MFPs—looking to become a solutions provider.
What Does this Mean to the Parties Involved?
For Kofax Executive Management, it means mission accomplished. For the past five years Kofax acquisitions and brand management have been conducted with shareholder value as the top priority. It would be difficult to point to any significant in-house developed innovations. Business Intelligence, Data Analytics, Invoice Processing and eSignatures are all the result of corporate acquisitions over the past five years. The company has been known more for positioning with KTA and “First Mile”. Investors have been relatively unenthusiastic about the message over substance approach, as the corporate valuation has risen little over the seven plus years’ under the current leadership. The fact that this acquisition added over $300M in shareholder value overnight is the Executive team’s greatest accomplishment. You can expect hefty payouts and quick departures post deal close.
For Kofax customers, this is a period of uncertainty that is likely to remain for a year or more; consolidation of resources is inevitable. Lexmark is unlikely to continue development of multiple capture and workflow products that until yesterday were competing for the same business. If you are a customer that has invested in Kofax Capture, KTA or any of the other Kofax product silos, you will be looking to Lexmark to clarify its vision for how these products will be developed and integrated with the other Perceptive products. Readsoft customers have dealt with this level of uncertainty for the better part of a year, and with the Kofax acquisition they will be justifiably hesitant to make any further commitments without a clear and compelling consolidation message. Be assured, between the customer bases of Perceptive, Brainware, Readsoft & Kofax, one and probably several will be faced with a “port to another platform” decision in the near future as their chosen product faces an end of life plan.
For Kofax resellers, this acquisition could be the last straw in a long-simmering, strained relationship. Once known for its channel-friendly policies and reseller-driven revenue model, the past seven years have seen the resellers’ role greatly diminished (and some might say devalued.) There has been platitudes presented toward a “balanced revenue model”, but for the most part partners stayed with Kofax because they had an established base of capture customers with a recurring revenue stream. Perceptive does not enjoy the same channel-friendly heritage as Kofax, so many partners will see their already reduced importance to Kofax, become insignificant.
For Kofax employees, prepare for redundancies across the board. Irvine, California may be the most expensive location in Lexmark’s growing pool of corporate offices. Expect tech support, administration, inside sales and marketing to be the first groups to have major reductions. Field sales reps, business development, sales engineers and professional services will also likely have major redundancies with other Lexmark/Perceptive counterparts. Finally, given the widespread projects now in the Perceptive side of business, you can expect to see the development teams consolidated.
For Transact Content Management vendors that have not purchased a capture vendor—many of whom have a relationship and joint customers with Kofax—this week is a signal that unless they want to selectively partner with their competitor, they will need to examine alternatives to the Kofax, which is now part of Perceptive ECM following Readsoft and similar acquisitions by EMC/Captiva and IBM/Datacap.
Ephesoft has many advantages being an aggressive, innovative company that is led by an experienced industry visionary. We have a five-year history dedicated to the capture market and we are the only progressive, independent software developer left standing. From the beginning, we made a conscious decision to focus on innovation, flexibility and customer value…not shareholder value. While Kofax has devoted its resources to acquisitions and brand positioning, Ephesoft has invested in product development. The results of that investment include Ephesoft Transact 4.0, Transact Mobile, and the soon to be released Ephesoft Insight.
Our channel partners chose Ephesoft not because they are trying to milk revenue from a legacy customer base, but rather because they know that they can deliver real value and tailored solutions with Ephesoft’s Web Service APIs and on-premise or cloud architecture. We also offer a pricing model that is fair to partners and doesn’t punish customers for being successful in implementing the technology. We don’t put a taxi meter on our customer’s systems.
This open philosophy and progressive business approach is why Ephesoft has been taking market share, partners and mindshare from Kofax, Readsoft and the rest of the captive capture vendors, and will continue to do so.