OpenText – Absorbing and Putting GXS and Networks at the Core

Pierre Mitchell and I are at the OpenText analyst day today in Boston. OpenText was not well known in procurement and supply chain before its acquisition of GXS (from Francisco Partners) that was announced in November of last year. The nearly $1.2-billion deal marked a dramatic expansion of OpenText’s strategy in targeting external collaboration and the sharing/management of structured data traversing between organizations. See our coverage of the transaction below:

Mark Barrenechea, OpenText’s President and CEO, kicked off the day with an overview of OpenText’s strategy centered on the concept of Enterprise Information Management. What OpenText describes as EIM includes helping structure and manage data both within and outside of ERP. But the ultimate path, he notes, is an “end-state with packaged applications” in which OpenText is delivering solutions up and down the stack – as well as broader connectivity.

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It’s an ambitious goal. But OpenText is already a $1.6-billion company. Thanks in part to GXS, it counts 600,000 “trading partners” using its capabilities and connectivity services. OpenText also has a proven M&A infrastructure to bring in new deals and a P/E multiple nearly 1.5 times that of SAP, which provides greater flexibility in pursuing transactions that can be accretive to revenue/earnings (although the revenue multiples of the two providers are more closely aligned). A side note here: not that SAP cares about acquisitions being accretive today on a P/E or revenue multiple basis – their aggression with paying market / premium prices for Ariba and Fieldglass, among others, shows a willingness to make truly strategic deals.

But where will OpenText go next? It’s made five acquisitions in the past two years: EasyLink, RKT, ICCM, Cordys, and GXS. OpenText, like SAP, has infrastructure, applications and connectivity (The Cordys business process management capability is especially impressive). And it’s commercializing all three – separately today, to different stakeholders in companies, but perhaps more closely linked in the future.

Today, the combination of “capture-to-archive” and “procure-to-pay” business processes make up “60% of OpenText’s business,” according to Barrenechea. He also observes that in implementing the ongoing strategy, “we’re paying attention to the supply chain, customers and engineering to structure the unstructured” data. Today, OpenText offers a range of “active apps” with linkages to procurement and supply chain based on a multi-tenant architecture including invoice management, community management and order management.

Looking ahead, Barrenechea notes OpenText “sees the world as a set of multi-tenant based services that connect whether you’re on premise or in the cloud.” Analytics and associated infrastructure will also a big push for the provider, including auto-classification, entity extraction, and sentiment analysis. Transaction analytics will include, on top of GXS, business network KPIs and supplier management (e.g., supplier scorecards). As an aside, we are pleased to see Steve Keifer (formerly CMO of GXS) at the helm of marketing at OpenText as well. Steve is the thought leader in EDI and B2B collaboration today and we’re sure part of this vision and roadmap owes in part to his perspective on the unfolding market.

OpenText has a fascinating set of assets and infrastructure to utilize as well as direct materials/manufacturing expertise that is lacking in the ERP procurement world. But like SAP, the integration of assets aimed at delivering value to procurement and supply chain stakeholders will become key to avoid becoming a Frankenstein’s monster in the technology infrastructure area.

We’re trying to sort out how all the acquired infrastructure technology firms and how the internally developed technologies are morphing together into an end-to-end technology stack. As Mark said, “you’ll see us migrate to a consolidated technology stack.” He also said that he wants the firm to “deliver world class integrated enterprise applications” (and tie it to the GXS Trading Grid). So, it’s IaaS (albeit just for OpenText), PaaS, and Saas, and building it organically and inorganically. And OpenText is hoping to partner with SAP that is trying to do all these things as well. It’s unclear how these firms plan to partner. We’ll explore this more.

This is a firm that really needs to put out a reference architecture to show how all the various components will get abstracted and offered as flexible services, with either legacy or new technology components getting slotted in (e.g., Cordys being used as the primary business process integration layer). If they don’t, we might have to just to make sense of all these moving parts!

Stay tuned for continued coverage from the event as well as Spend Matters PRO analysis on OpenText.

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