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Open Text: big, bigger, biggest

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Canadian software maker Open Text is offering a friendly bid of around $233 million to buy Ixos Software. By merging, the two companies hope to create the world's largest enterprise content management software vendor, and defend their positions against their fast-growing rivals.

If its proposed acquisition of Ixos goes through, Open Text faces the usual challenges of picking through the overlaps of the two product sets to present a coherent single offering to the market. Software companies are difficult (and costly) to integrate and it remains to be seen how a Canadian company that plans to run a large part of its business from Chicago will meld with a German company almost the same size. However, having successfully absorbed 20 or so software companies in the past no other firm in the industry perhaps has greater experience in this respect. Ixos too has recently absorbed two technology-based acquisitions - buying Swiss ECM company Obtree Technologies and German workflow vendor PowerWork at the beginning of this year.

Admittedly Ixos will be a big financial nut for Open Text to swallow, and its impact on Open Text is unclear at this stage. Some financial analysts watching the deal believe that if the bulk of Ixos' shareholders choose to receive Open Text stock, then Open Text's EPS will show minimal growth due to the resulting dilution, and that Open Text's overall growth rate will suffer by adding the slow-growing Ixos to its revenue mix. Nevertheless, Ixos' snail-like growth rate must be weighed against the added 'heft' it brings to Open Text, not to mention an expanded customer base.

Ultimately, Open Text's takeover shows how consolidation continues unabated in all sectors of the enterprise software market. Open Text's move comes a week after storage giant EMC tabled a $1.7 billion bid for California-based content management provider Documentum, leading some analysts to question Open Text's ability to defend its position in the market against bigger players. Indeed, Open Text's move is largely a reaction to such market consolidation, although it denies it was a response to EMC's Documentum bid in particular.

Source: Computerwire/Datamonitor

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