Ephesoft Marketing Director Tim Dubes reflects on the new back up Plan B of Lexmark’s Perceptive/Kofax/Readsoft/Brainware document capture acquisitions


plan-bBack in May of this year I wrote a blog post on the impact of the Lexmark acquisition of Kofax to the various stakeholders and the document capture industry in general. I expected to write a follow up post a year later to report on the progress/fallout of this deal.

Yet here we are less than six months later, and the Lexmark board has announced that that it is exploring “strategic alternatives to enhance shareholder value,” including the potential sale of the company. Six months is not exactly a long runway to see out the vision of building an integrated Transact software division.  Especially when the newly christened Lexmark Transact Solutions’ sales team is out in the field asking customers to sign on for 1, 2, 3 year or longer commitments.

The For Sale sign gave the company’s ailing stock a nice short-term 10% boost, but most of the temporary gains were reeled back in this morning (27 October) as the company reported disappointing third quarter sales and profitability.  The company’s market capitalization is now more than 25% below its earlier 52-week high, and apparently substantially below the Lexmark board’s expectations. So what strategic alternatives would increase shareholder value?

Perhaps (and it is a timely hypothesis with the recent Back to the Future social media references) we will see a repeat of Kofax’s divestiture of its one-time hardware distribution parent, Dicom.  Hardware tends to be valued substantially lower than software solutions, and that was certainly the motivation in 2011, when Kofax sold off Dicom for a small fraction of its annual sales revenue.  However, if the plan was to sell of the desktop hardware division Lexmark is mostly know for, why was the software division relabeled as Lexmark? Wouldn’t keeping the Perceptive or Kofax brands make more sense?

Another hypothesis, credited to Document Imaging Report editor and good friend Ralph Gammon, is that the entire Lexmark entity could be taken private. It’s an interesting notion, but that would require some private equity fund(s) that have a belief in Lexmark management’s vision for the organization.  It seems like the company has struggled to articulate to the market its technology roadmap for streamlining the overlapping technologies represented by Brainware, Readsoft and parts of Kofax.  Undoubtedly, a private equity fund would want to see a clear picture of how the company will pare down overlapping development teams, and—given the current confusion—how the company will secure what is surely seen as one of its most valuable assets—software & support contract renewals.

I suppose, part of the answer to what is Plan B for Lexmark, lies in the quote from the Lexmark release: “strategic alternatives to enhance shareholder value.” It has always been understood that corporate boards have a fiduciary responsibility to build shareholder value.  Yet, shouldn’t the management team have a focus on customer value?  That seems to be the lost component in the Lexmark/Kofax six month journey.  Customers of all the various Lexmark Transact Software platforms seem to be kept in the dark on the future of their technology investment.  If the company takes such a dramatic change in course in less than half a year, how can it ask government agencies, large financial institutions, and other organizations that are accustomed to making strategic technology investments for long-term benefits, to take a leap in faith?

Plan B should be worrisome to those attached to the Lexmark direction.  On the other hand, for customers who are facing an end of the year decision regarding contract renewals or extending their investments, better to have this advanced warning.