If Lexmark International’s acquisition of Kofax isn’t one of the document imaging industry’s biggest stories of the year to date I can’t come up with too many others at the moment. But with all due respect to Lexmark International, who would have thought that the Lexington, KY based company would make one of the biggest acquisitions of the year?
It’s not like this is an unprecedented move on Lexmark’s part. Lexmark already has a healthy software offering. After all, the company did acquire Perceptive Software in 2010. But that was then and this is now, and there’s been a lot going on with Lexmark since then, some of it financially challenging.
I thought it would be interesting to get a third-party perspective on the acquisition from some leading industry analysts as well as a couple of Lexmark dealers. Even though I think it’s a big event, others in the industry may feel differently or not.
“This news is consistent with Lexmark’s acquisition and solutions led strategies,” observed Andy Slawetsky, president of Industry Analysts. “Lexmark gets a customer database with 20,000 names and a renowned vertically market focused workflow company. It’s a nice get for Lexmark.”
IDC’s Keith Kmetz doesn’t expect to see any major impact on Lexmark dealers. “Initially, I don’t think much is going to change for Lexmark traditional dealers as I believe they had access to Kofax solution through Lexmark and they should continue to have access. Additionally, I don’t think there’s much overlap in accounts or in the channel between Lexmark and Kofax either.”
What he thinks will be interesting to watch is when and how Kofax is integrated with Perceptive.
“At some point, channels from both sides will have to decide if the new offering fits in with their strategy,” says Kmetz. “From a vertical standpoint, Kofax has focused on financial services (a traditionally strong Lexmark vertical), so we could see even stronger presence for Lexmark in this key market as a result of the acquisition.”
Ultimately, he considers this a win for Lexmark. “This was a ‘big fish’ for Lexmark in their ongoing software acquisition activity as they continue to build their skill set in business process,” adds Kmetz.
Brian Bissett, editor of The MFP Report, tells me the acquisition of Kofax, especially at this relatively high price and given the size of the company will be a major test of Lexmark’s ability to integrate it with its other software acquisitions.
“There appears to be a not-so-small amount of overlap with Readsoft and Brainware (two other software offerings available from Lexmark),” notes Bissett. “While Kofax definitely boosts the size and scale of Lexmark’s software revenue, it does not necessarily address the profitability challenges Lexmark has long faced in its software business.”
He predicts that the cost of the deal and the integration complexity might mean Lexmark won’t be doing any other software deals—except possibly for some very small ones—for the next year or two.
As to whether anyone else was courting Kofax, Bissett has some thoughts on that too.
“It will be interesting to see if Xerox missed the boat by not stepping up to acquire Kofax,” he says. “One could argue that Xerox has more need and ability to leverage what Kofax does, especially in the Services side of its business. It appears that the high price was the main deterrent for Xerox.”
A potential complication to the deal, according to Bisset, is Kofax’s relationships with other vendors.
“It will be interesting to see if Lexmark remains interested in allowing Kofax to continue either its longstanding partnership with Ricoh or its new partnership with Xerox,” states Bissett.
I also asked a couple of Lexmark dealers for their thoughts on the acquisition, particularly if it would have any impact on their product offerings.
“Eventually it probably will,” says Ray Belanger, president of Bay Copy. “To me the big question is on how we lead with solution-based offerings. We’re doing this with MPS. It’s easy to understand the concepts, but much more difficult for most dealers to execute. It’s a different and more complex type of selling. It’s also more complex to support. If you can’t back it up, you won’t be successful with it.”
Similarly, Barry Simon, president of Datamax, one of Lexmark’s biggest dealers, doesn’t expect this to change things for his dealership all that much.
“It’s good for Lexmark, it doesn’t change anything for us,” he says. “I’m sure that Lexmark is just continuing to try to brand themselves like with their acquisition of Perceptive. They want to be in the software business and a lot of their acquisitions are to make that stronger. The question we always ask is how does that fit into our channel?”
Meanwhile, Nuance, a competitor of Kofax in the document scanning market, proactively issued the following statement from Mike Rich, executive vice president and general manager, Document Imaging Division less than 12 hours after the acquisition announcement hit the news wires.
“The acquisition of Kofax reaffirms the importance businesses place on enhancing and streamlining critical business processes. Companies such as Kofax and Nuance, which help organizations reduce costs, meet security and compliance needs, drive profitability and better serve their customers, are currently reshaping the capture and MFP solutions landscape. The premium Lexmark paid is a strong indicator of market growth and the current demand for end-to-end workflow software.”
For a company like Lexmark to invest as much money as it did to broaden its already solid solutions offerings, underscores not only the value it places on solutions, but provides the company with a slight advantage over some of the other secondary players in the market vying for the hearts and minds of dealers within the independent dealer channel. The challenge is making a compelling case for dealers to add these solutions into their existing product and solutions offerings.
