Is Lexmark’s Revised Bid For ReadSoft Justified?

by Trefis Team
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In May, Lexmark International (NYSE:LXK) had announced its plans to acquires Readsoft, a Swedish document and business process management company that offers both on-premise and cloud software, for $182 million. [1] However, the company had to raise its offer to 43 Swedish kronor ($6.46) a share from its May offer of 40.50 kronor due to competitive bidding from Hyland Software U.K. Ltd. on June 18. While Lexmark’s offer was expected to close by the end of June, it has now been extended to July 14. We believe that ReadSoft’s shareholders will most likely accept Lexmark’s offer. In this note, we will explore why Lexmark has increased its bid price for ReadSoft.

See our full analysis on Lexmark

Why ReadSoft Is Important For Lexmark’s Perceptive Business

According to Lexmark, the addressable market for both electronic content management (ECM) and business process management (BPM), is fairly large and offers good growth rates. Lexmark estimates that worldwide spending for content and process management in 2013 exceeded $10 billion. It expects that the content and process management software will account for about 30% of its revenue by 2015. The content and process management is expected to grow at 10% per annum in the near foreseeable future. [2]

The company plans to achieve this growth by leveraging its Perceptive Software’s strength. Perceptive business has four primary functions:  capture, content, process and search. It has been able to supplement growth in these areas through acquisitions (with financial and strategic support from Lexmark). As a result, Perceptive Software has emerged as a leader in Gartner’s magic quadrant for enterprise content management (ECM) solutions. [3] Although it continues to rollout products (such as Perceptive Content 7 and Perceptive Evolution) to leverage the growth in the ECM vertical by providing support through cloud computing, Lexmark still needs to augment its product portfolio through acquisition, especially in regions where it has limited reach.

ReadSoft not only adds  account payable process automation to Perceptive’s portfolio, but also increases its reach to the rapidly expanding document business process solutions footprint in EMEA, which is the second largest content and process management software market in the world. Furthermore, the company has over 12,000 customers worldwide including BASF, Siemens, Bosch, HSBC, ING, Lego and John Deere, and Lexmark can now deliver solutions to these enterprise customers. [4] This acquisition will accelerate Lexmark’s objective to expand its operations to 70 countries through ReadSoft’s offices. ReadSoft will also gain from the synergy of its products with Perceptive’s. Furthermore, the company can also leverage Lexmark’s support services to improve customer experience for its existing users and sell its product to the existing client base of  Perceptive Software. These factors will boost Perceptive’s revenue in the future.

We believe these factors justify Lexmark’s revised bid for ReadSoft. While the deal is still under consideration, we continue to closely monitor the situation. We currently have a $39.71 Trefis price estimate for Lexmark, which is 17% below its current market price.

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Notes:
  1. Read Lexmark Set To Acquire Swedish Company ReadSoft []
  2. Lexmark 10K, www.sec.gov []
  3. Perceptive Software Positioned in Leaders Quadrant of Gartner’s Magic Quadrant for Enterprise Content Management, October 6 2013, www.lexmark.com []
  4. Lexmark Makes Offer to Buy Swedish Tech Outfit, May 6 2014, www.bizlex.com []
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