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Waterloo, Ont.-based software company Open Text Corp. has agreed to buy the cloud-based security firm Carbonite Inc. for US$1.42-billion, including debt.
The deal will value the Boston-based company at US$23 a share, a 25-per-cent premium over Friday’s closing price on Nasdaq. But that price also represents a 22-per-cent discount from Carbonite’s US$29.45 share price last February, just before it purchased the Colorado cybersecurity company Webroot Inc., for US$618.5-million, which caused analysts to raise concerns about Carbonite’s debt load. Open Text said it would make the purchase with cash and its line of credit, and expects it to close in 90 days.
Open Text has become one of Canada’s largest software companies through regular mergers and acquisitions, focusing largely on business-to-business software with an increasing emphasis on the cloud. Its suite of services for enterprise businesses includes customer-management software, process automation and cybersecurity.
Carbonite, named after the impenetrable fictional substance used to trap the character Han Solo in the Star Wars film The Empire Strikes Back, purports to make its clients’ data similarly impenetrable with secure backups. It focuses on small-and-medium-sized businesses as well as professional consumers – target markets to which Open Text hopes to extend its broader suite of services.
“We think that is a great route to market,” Open Text chief executive officer Mark Barrenechea said in an interview. He added that buying Carbonite would also further bolster its security offerings for businesses’ “endpoints” – connected devices ranging from mobile devices to connected sensors in industrial machines. Steve Munford, Carbonite’s chair and interim CEO, was not available for an interview.
Open Text announced the purchase before markets opened Monday. Its Toronto-listed shares opened up 3.1 per cent, at $56.69. Carbonite’s Nasdaq-listed shares shot up 24.4 per cent on the news, to $22.89.
Analyst Gabriel Leung of Beacon Securities Ltd. said it is a good acquisition for Open Text, highlighting the recurring revenues it would bring in from 300,000 small-and-medium-sized businesses and eight million professional users.
Despite its continued acquisition-focused growth, investors have become frustrated in recent months with Open Text’s slower organic growth. When the company reported negligible organic revenue in the quarter ending in June of this year and said its fourth-quarter 2019 organic revenue would be in the low single digits, its shares fell 9 per cent.
Mr. Barrenechea said the Carbonite purchase fits into Open Text’s “total growth strategy,” not just through the value of the acquisition but through its own potential organic revenue growth, which the CEO said would be in the low single digits.
Open Text’s largest acquisition came in 2016 when it bought Dell Technologies Inc.’s enterprise content division for US$1.62-billion. The company has since kept up its M&A strategy with smaller buys. In October 2018, it announced it would buy the Atlanta-area data-management company Liaison Technologies Inc. for US$310-million. And in February, it revealed that it would spend US$75-million on the Colorado legal-tech company Catalyst Repository Systems Inc.
The company did not disclose the cash value for the Carbonite transaction, but said in its most recent quarterly report that it had US$1-billion cash and a US$750-million line of credit for acquisitions. Mr. Barrenechea said that despite the US$1.42-billion value of the Carbonite purchase, he would not rule out further near-term acquisitions.
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November 11, 2019 at 09:10PM
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