Open Text’s $330-million acquisition a win for private equity

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One of the biggest winners in Open Text Corp.'s $330-million (U.S.) takeover of Silicon Valley software analytics firm Actuate Corp. is San Francisco private equity firm Vector Capital Management LP. The investment company, a spinoff of Ziff Brothers Investments and headed by Alex Slusky, was set up with the goal of investing in under-valued tech companies. In 2007, it raised $1.2-billion from investors including Harvard University. Five years later, investors were reportedly disappointed the company had not put more of that money to work, and Bloomberg later revealed Vector had in fact bought into a Caribbean payday lending business.

But Vector appears to have lived up to its original promise by making a well-timed investment in Actuate. In the month after Actuate reported terrible first quarter results on May 1, Vector piled in, buying 4.23 million Actuate shares – about 9 per cent of the company – for roughly $17.5-million, an average of $4.13 a share. After selling some of that for a small profit later in the spring, it still controlled 3.36 million shares as of its most recent SEC filing. Vector's arrival appears to have prompted some defensive actions by Actuate, including the adoption of a shareholder rights plan and an update to its change-of-control terms with senior executives.

With Open Text paying $6.60 per share in cash (the Waterloo, Ont. company has enough cash on hand to cover the purchase), Vector stands to pocket a profit on those remaining shares of more than $8-million. Whether that's enough to move the needle on such a big fund is a matter for Mr. Slusky to bring up with his backers. Meanwhile, Open Text is trumpeting the deal, focusing on Actuate's leadership in the "personalized analytics and insights" space and its addressable $5-billion market as well as its tier one client list, including Shell, Johnson Controls and HSBC. Less flattering is the fact Actuate's revenues in the first three quarters of the year were only $75-million (U.S.), down from $102-million in the comparable period last year, while the company moved from a $5.6-million net profit in that period last year to a $7.7-million net loss so far in 2014.

Open Text did not have outside investment banking advisers, and represented itself on the deal. "OpenText does not hire bankers. We have done 52 deals, now including Actuate, with our internal M&A team and resources and appreciate outside advisors, but not bankers," a company spokesperson said in an email.