Top Image Systems - Capture Market Heats Up
Apr. 2, 2015 9:08 AM ET | About: Top Image Systems, Ltd. (TISA), Includes: KFX
Disclosure: The author is long TISA, CIMT, QADA. (More...)
Summary
Lexmark buys Kofax.
Disruptive transaction for Capture market.
Few remaining pure plays in Capture.
Printer and toner company Lexmark (NYSE:LXK) has agreed to acquire enterprise capture company Kofax (NASDAQ:KFX) for $1 Billion USD. The below descriptions of both Kofax and Top Image Systems (NASDAQ:TISA) tell you the two businesses have more similarities than differences making the transaction quite relevant for assessing value in TISA in a takeover situation.
Kofax provides smart process applications software and related maintenance and professional services for the business critical First Mile of interactions between organizations and their customers, citizens, vendors, employees and other constituents.
TISA provides enterprise solutions for managing and validating content entering organizations from various sources. It is engaged in the development and marketing of a variety of information recognition systems and technologies and automated document capture solutions for the efficient flow of information within and between organizations.
The transaction values Kofax at circa $1 billion. This is Lexmark's second major transaction in the enterprise content management space after buying Perceptive Software for $280 million in 2010. Perceptive Software key applications were in Enterprise Content Management (ECM), Business Process Management (BPM) and Document Output Management.
The Kofax acquisition rationale revolves around Lexmark's stated ambition to move out of the highly competitive and low margin printing hardware space into software and services. "The acquisition of Kofax enhances our best-in-class offerings so our customers can capture, manage, access, and act upon their information more efficiently, and extends Lexmark into the high-growth smart process applications market," said Paul Rooke, Lexmark chairman and chief executive.
The Kofax transaction multiple unsurprisingly makes the TISA valuation metrics look good with a $6.21 to $7.50 valuation not unreasonable for 2015, but then again there is no corporate buyer queuing up to purchase Top Image Systems, just at the moment. The transaction however probably disrupts the capture market, creating opportunities for a pure-play company like TISA to take some market share.
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The price being paid looks quite generous as content capture companies traditionally have traded at a discount to broader ECM/BPM software companies. The above table shows Lexmark are paying 3 times EV/Sales and 20.3 times 2015 EV/EBITDA which is rich and explains the Kofax share appreciation of 45 percent on the day the deal was announced.
The following industry article highlights how Lexmark acquiring Kofax may be potentially be quite disruptive to the capture market. This could open up opportunities for a small and nimble player like TISA.
Time will tell whether Lexmark is overpaying for a software company, or the deal has genuine visionary properties with enterprise capture to emerge as a more valuable component of enterprise content management. Investors are however not paying a big valuation for TISA today as it trades on an EV/Sales multiple of 1.23 times for 2015.
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