Earlier this week, Lexmark (NYSE: LXK) announced that it had commenced a cash tender offer for all of the outstanding shares of ReadSoft (NASDAQ OMX: RSOF-B), a Sweden-based provider of AP automation and document management solutions. ReadSoft was founded in 1991 and has approximately 625 employees. The company is headquartered in Helsingborg, Sweden. The offer is an all-cash bid for a price of approximately $182 million (net of ReadSoft’s cash on hand at deal closing). The tender offer represents a premium of more than 100% to current price of both tiers of stock and 42% above the Series “A” stock’s 52 week high. If accepted, the deal is expected to close in Q2 2014.
In a statement concurrent to the announcement, ReadSoft’s Board of Directors unanimously recommend the offer. Additionally, ReadSoft’s two founders, who together own more than 64% of the company stated that they will vote to accept the tender. The tender needs 90% of all outstanding shares to vote in favor of the deal, so while we believe the deal is very likely to close, it is not as yet, a done deal.
But, while the tender represents a nice premium to ReadSoft’s current enterprise value, the deal is at a much lower valuation (based upon a revenue multiple) than what Lexmark paid for Brainware in 2012 (see our discussion of the Lexmark-Brainware deal here). While ReadSoft reported revenue growth of 8.7% in Q1, 2014, more generally, its growth would be described as slow or stagnant and it has struggled for profitability in recent quarters and years. These factors justify a lower valuation than Brainware’s acquisition price.
If the deal closes (and we expect that it will), ReadSoft will be combined with Lexmark’s Perceptive Software group where it will sit alongside the Brainware capture solutions and those of the formerly independent Perceptive Software. Given the heavy overlap of the different solution sets (ReadSoft began as a capture company and later developed workflow solutions), it is likely that Lexmark is buying ReadSoft in no small part for its European business and customers (Brainware’s business has been more US-centric). Additionally, although ReadSoft has been losing ground within the SAP ERP install base to both OpenText and SAP/Ariba, it has been more successful in the large enterprise market than the Perceptive Software team has been.
Things to watch and consider:
- Lexmark’s post-acquisition product strategy: for current Readsoft customers (and prospects), a new concern is how long Lexmark/Perceptive will support the now-redundant ReadSoft solutions?
- Market impact: Which providers will be poised to take advantage of the acquisition? We expect ReadSoft’s main rival, Kofax will benefit by the valuation and from its experience completing its own post-merger product integration several years ago. We also expect Basware to take advantage of the market disruption, particularly in its stronghold of Northern Europe as well as the US.
- Brainware OEM Partners: At some point, some OEMs will realize they compete with all or some of the Lexmark/Perceptive/ReadSoft solutions and begin to look for other capture partners. This could open the door for companies like Yooz.
- ReadSoft Partners: Taulia, a provider of dynamic discounting, invoice, and payment solutions, may benefit if it can expand its partnership to the larger and more advanced parent.
