Why Open Text bought Vignette -- the real story

  • 7-May-2009

This morning as I awoke at an ridiculously early hour (jet lag), to find my mailbox full of questions from journalists, commentators, and CMS Watch research subscribers asking for my take on the deal.  Or more specifically (and this is interesting) why on earth did I think Open Text would want to buy Vignette? The fact that they did came as no surprise at all as the potential acquisition has been discussed quite openly in the industry for many months now, and after Autonomy bought Interwoven a deal for Vignette was near certain.

It's an interesting question as many commentators, including my colleague Kas have said that they believe that Open Text's long acquisition spree has seldom made sense.  I disagree. I think Vignette and almost every other vendor that Open Text has bought (and it's a very long list) makes perfect sense.

Here's why...

Despite the current global economic downturn, and despite the decade long ups and downs of the technology market, Open Text has thrived.  It has moved from being a quirky little search technology spin-off from Waterloo University in Canada, to a billion dollar technology giant.  More importantly it has not just grown, it has been consistently profitable. Even in the worst of times after the dot-com bust, Open Text fared wonderfully (in comparison to its competitors).  Contrast Open Text's slow but steady rise to power with Vignette's meteoric and short-lived moment in the dot-com sun, followed by years of trouble and strife. In short shareholders love Open Text, and so they darn well should.  If I were a shareholder (and I am not) I would love the Vignette acquisition, for as Paul Steep at Scotia Capital told me: "Financially the deal looks better than the surface would appear when you strip out the cash and costs and account for major tax loses at VIGN," and I am sure he is probably right.  Let me go further and say that the Open Text model is so successful that it has spurned copy cats - one look at Autonomy and there is evidence for that assertion.  For just like Open Text, Autonomy is growing by exactly the same type of acquisition strategy, and their shareholders, as well as financial analysts such as my old friend Richard Holway, love them.

Of course I am not a shareholder, nor am I a financial analyst. I am an analyst who advocates for technology buyers. Therefore, my personal and professional perspective on this particular deal, and the broader growth strategy followed by Open Text, is quite different from equity analysts.  I don't like the deal or the strategy at all.

Here's why.....

In the corporate realm (as every other) there is only so much love to go around.  And when when you have a portfolio of overlapping products something has to give.  You can either try to somehow glue all these new technology codebases and offerings together with all your existing products -- or you leave them alone to run as standalone solutions.  Gluing them together is just not feasible on this scale, it cannot be done regardless of what the marketing from Open Text (or Autonomy in it's turn) might like you to believe. All you can really do is to slash costs where possible,  leave the technology pieces alone as much as possible, and milk the product and customer base as cash cows. That is a great thing from a shareholder's perspective, since the maintenance streams alone from some of these products will bring home the bacon for another decade at least.

If you're a user or buyer of that particular technology piece though, that sucks.

As any consultant or senior executive will tell you, you cannot keep all your stakeholders happy. The real world just isn't like that.  Firms like Open Text are keeping their shareholders very happy, and frankly there are not too many firms in this economy doing that, so let's give credit where it is due. Since it will be quite some time until the Vignette acquisition is complete, we will be watching and commenting on the progress closely, through the eyes of you the user and buyers of technology.

An area of particular interest for me will be in the Imaging technology that Vignette acquired some years back from Tower, and how that will play out with all the other Imaging products that Open Text offers from its vast arsenall. As CMS Watch has by far the most detailed and extensive research into Vignette, Open Text, and Autonomy of any industry analyst company (likely more than all our competitors combined), our subscribers can rest assured that they will continue to get The Real Story.