A Good Deal for Captaris and Open Text—but Impact on Seattle-Area Innovation Is Less Clear

9/5/08Follow @gthuang

Yesterday we reported on the $131 million acquisition of Bellevue, WA-based Captaris by Open Text, a Canadian software company, and wondered how good a deal it really is for the companies and their employees. (Captaris, a $90 million public company, eked out $220,000 in net income last year, down from nearly $4 million the year before, and it seems like that inability to grow may have forced their hand in seeking a buyer.) Today I had a chance to speak about the deal with Eddie Pasatiempo, formerly senior vice president of global sales and international field operations at Captaris, and now a partner at The Clarion Group (and an Xconomist).

“I think it’s a good deal for Captaris and a good deal for Open Text,” says Pasatiempo. “There are a lot of synergies there. Strategically it’s a nice fit, they complement each other…I admire [Captaris CEO] Dave Anastasi’s conviction to find the right buyer and the right fit. When you have a deal in hand, you never know if you’re going to get a better deal. The team and the board had value in mind.” Pasatiempo says the size of the deal seems reasonable—stockholders will get $4.80 a share, a 31 percent premium over Wednesday’s closing stock price. “Timing is everything,” he says. “They took a disciplined approach in terms of finding the best value for shareholders…As a shareholder of Captaris, I’m happy.”

Pasatiempo points to several reasons for the good fit. “The Captaris product suite is filling a gap in [Open Text's] portfolio. That’s a good thing for both companies. Captaris has a terrific distribution channel, with almost 2,000 partners globally; they have good international presence with their product. Another thing is, Captaris boasts a terrific client base.” He says Captaris’s fax software and server product, RightFax, is “installed in every one of the Fortune 100 accounts…OpenText can land and expand. The third thing is, there is great recurring revenue from service contracts. And the last thing is the talented people there [at Captaris]. With demographics, baby boomers retiring, talent is always a good thing.” From Captaris’s point of view, he says, “Open Text is a big company [$725 million in fiscal revenue, 3,000 employees]. It’s great for the partner base.”

But Pasatiempo also notes that the deal’s impact on the Seattle-area economy and innovation community is less certain. It will depend on what Open Text decides to do with the Captaris offices here, he says. “Do they keep their presence here? It’s always disappointing when a local company, especially a public company, gets acquired by someone outside. Will they move it all out [to corporate headquarters in Waterloo, Ontario, or global headquarters in the Chicago area]? Now that they’re here, they have access to good talent.”

Open Text has at least one long-standing connection to the Seattle area. Its executive vice president of worldwide sales, John Wilkerson, is from Seattle and probably had a role in the due diligence, says Pasatiempo. Wilkerson previously worked at IBM in Seattle, and at the Bellevue, WA-based software firm Bocada, so he’s very familiar with the area.

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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  • Dan Aronson

    As a 20 year veteran of the fax server industry, I can say without hesitation that this was an OK deal at best for Open Text. Certainly there can be no question that gaining the Captaris distribution network is a plus. However, as far as innovation is concerned, there hasn’t been any real inovation at Captaris in a very long time. All “new products” that they have introduced have been gained through acquisition — not innovation.

    And while they were busy trying to integrate these acquisitions into their overall corporate culture, they allowed the only product that was truley of their own making and thus their only real chance at innovation to suffer. Of course, I am speaking about RightFax.

    Mr. Pasatiempo quoted Captaris marketing rhetoric about placement in the Fortune 100, a claim they have been making for nearly a decade. But when you look at real meaning of this claim, it is not as impresive as it might sound. Most of the Fortune 100 have many fax servers, none of which handle 100% of thier fax traffic. So all one needs is to have a single, four port solution back-ending some legacy purchasing system to make the claim that they are “in” that company. Meanwhile, companies like Boeing have implemented much larger fax servers that handle the lions share of their fax nees that are not RightFax. So again, this is not that impresive a claim.

    Mr. Pasatiempo also fails to mention that sales have continually declined over the past two quarters due to, by their own admission (just listen to the quarterly conference calls to verify) the poor performance of what they call their “legacy North America dealers”. These resellers have always accounted for a large portion of RightFax sales, and most of them do not actively market the other Captaris solutions.

    The fact is that RightFax is a stale product that has missed every upward trend in the fax industry. There are only two expanding market segments in the fax industr; T.38 Fax-over-IP and Fax Services (i.e. eFax). Captaris runs a distant second in the T.38 Fax-over-IP market. And they do so because they are not fax innovators at all. Like nearly everyone else in the fax server industry, they relied on Dialogic (formerly Cantata, who was formerly Brooktrout) to provide the T.38 fax signaling piece. Since Dialogic/Cantata/Brooktrout was late in coming to the market with thier T.38 solution, Captaris was locked out of that space as well. And as for the Fax Services space, the RightFax End-User License Agreement strictly prohibits the use of RightFax in a fax services environment, so they have zero presenc there.

    So as you can see, to call Captaris an innovator is really a stretch. Anyone can acquire technology by buying it. IT Managers do it every day. But that does not make every IT Manager an innovator.

  • http://phantomdatasystems.com/services.html Alani Kuye

    Not only did they acquire Captaris, they cleaned out operations and pretty much adopted the CA model which is to screw the channel while acting as it’s friend.
    I make a bold statement by saying this is not the end, that industry is in a sharp nose dive.
    Innovator? Not a rats chance!
    Every Tom, Dick and Harry is now making document / content management software. We we move into a more collaboratively competitive environment instead of a purely competitive one, we’ll be seeing more shakeups like these.

    Alani Kuye
    Phantom Data Systems Inc.
    http://www.phantomdatasystems.com
    Online Document imaging Solutions
    Data Storage and Recovery
    Norwalk CT.