Open Text bulks up with seventh purchase since April 2016

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Canadian technology acquisition machine Open Text Corp. announced its latest deal Wednesday, one day after dodging a bullet on its most recent purchase.

The enterprise software giant from Waterloo, Ont. said Wednesday it would pay $7.10 (U.S.) per share, or $240-million, for Nasdaq-listed forensic security firm Guidance Software Inc. of Pasadena, Calif. Open Text will finance the deal from cash reserves and short-term debt facilities and expects it to close by Sept. 30.

Open Text chief executive Mark Barrenechea is likely hoping for a smoother ride than his most recent deal, a $103-million takeover of Nasdaq-listed cloud computing firm Covisint Corp. Open Text announced a $2.45 friendly bid for the Detroit firm seven weeks ago, but last week hedge fund manager and Covisint investor John Fichthorn of Dialectic Capital Management LLC ripped into the transaction in a public letter accusing Covisint of "years of mismanagement" and for agreeing to an "inadequate" offer. "It appears that Covisint was practically given away," he wrote. Covisint is also the subject of a class-action lawsuit over the deal filed in U.S. District Court this month.

Covisint disputed the letter's assertions as "inaccurate," while Open Text said last week its offer provided "shareholders with compelling overall value and value certainty." Luckily for the parties in the deal, the critics fell short: Covisint shareholders on Tuesday voted 60.8 per cent in favour of the transaction versus 39 per cent against.

Open Text shareholders can expect more of the same – deals, that is, if not necessarily attacks from opportunistic hedge funds. Under the leadership of Mr. Barrenechea – a veteran U.S. tech-industry executive who joined in 2012 – Open Text has become a streamlined seller of services to digitize the internal processes of large business and government clients. It recently announced plans to take on IBM's Watson division with its own artificial intelligence platform Magellan.

But Mr. Barrenechea told The Globe and Mail recently that M&A continues to be his main focus for driving shareholder value; last year he said the company would step up the pace of purchases and quadrupled the size of his in-house deal team to 20 people. Little wonder: While revenues from the company's existing business have ranged from barely positive to slightly negative for years, it has consistently delivered 10 per cent-plus revenue and earnings growth annually by buying and successfully integrating other firms.

Echelon Wealth Partners analyst Ralph Garcea said the Guidance deal was the company's 56th acquisition in 20 years; under Mr. Barrenechea's watch, Open Text has purchased 15 companies with a combined enterprise value of $4.6-billion, including the two pending deals. Seven of those, valued at $2.7-billion combined, have happened since April, 2016, including its largest deal to date, the $1.62-billion purchase of Dell Inc.'s enterprise-content division.

Investors have rewarded the deal-making and Open Text now has a market value exceeding $12-billion (Canadian); the stock gained as much as 3 per cent Wednesday following news of the Guidance purchase.

"Their revenue base will now be almost 50 per cent higher than it was prior to these acquisitions," said BMO Capital Markets analyst Thanos Moschopoulos, who has an outperform rating and $38 (U.S.) target on the stock. "It's buying these assets at attractive multiples, it's historically shown that it's good at integrating acquisitions, and the deals have also generally made sense from a product perspective. And so consequently, we like the acquisitions and we like the stock."