Open Text Buys Metastorm

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So, by now, you’ve probably seen the announcement that Open Text has bought Metastorm. The question I have is why. Not that Metastorm isn’t a good company in a good market – it’s just that this seems like a bit of an odd deal for Open Text – most similar to the ECM ISV’s acquisition of IXOS way back in 2003.

Why is the deal odd? Well, Open Text, which usually drives a pretty hard bargain, agreed to pay $182 million in cash for Metastorm, which depending on who you believe is 2 to 2.5 times Metastorm’s annual revenue. My information had Metastorm on track for more than $90 million in 2009. The Seeking Alpha Web site apparently had the same info that I did, but is also reporting that “Open Text indicated that Metastorm was generating $70-75m in sales….However, we suspect that guidance assumes a bit of revenue write-downs and (perhaps) a bit of sandbagging.”

Either way, Open Text does seem to be paying a bit of a premium by its standards, even if Metastorm has shown some impressive growth- it was reportedly a $25 million company just five or six years ago – and is in the fairly hot BPM space. The fact that Open Text is buying anyone that large for 2 to 2.5 times revenue in a still shaky economy comes as a surprise. I remember being similarly surprised by the 1.5 times revenue premium Open Text paid for IXOS eight years ago (IXOS was not in a hot space), but that deal’s primary driver was that it gave Open Text an in with SAP, which it has certainly leveraged successfully.

Was the Metastorm deal something orchestrated by SAP, similar to Open Text’s acquisitoin of Captaris for the capture technology that was immediately embedded in an SAP OEM offering? I don’t know, but I certainly suspect there is more to this deal than meets the eye.

Any thoughts?

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