This morning, Enterprise Information Management (EIM) technology provider OpenText announced that it has entered into an agreement and plan of merger to acquire B2B platform vendor GXS. The purchase price is reported to be approximately $1.2 billion, roughly 2.4 times GXS Fiscal 2012 revenues, and includes a financing commitment of $265 million cash, $800 million debt and $100 million of equity. This transaction is targeted to close in 90 days and to be accretive to adjusted earnings for fiscal year 2014. The combination of both of these cloud technology providers will provide a company with upwards of $2 billion in revenues supporting over 80,000 existing customers in 140 countries. This is another “big deal” in the B2B platform market.
The roots of GXS stem back to the late sixties with its initial founding as General Electric Information Services (GEIS) providing computer time-sharing to general users, migrating to support value-added network (VAN) services such as EDI for both GE and external clients. By 1998, GEIS’s global electronic trading community exceeded 100,000 trading partners, and in 2002, the renamed GXS was spun out as an independent technology services provider purchased by venture capital firms Francisco Partners and Norwest Venture Partners. In June of 2012, Supply Chain Matters declared that GXS was a hidden gem in the B2B information services and application support arena.
The company has built the GXS Trading Grid, a global platform to support e-business and supply chain information integration that currently supports 550,000 trading partners. GXS customer names include the likes of General Electric, General Motors, Siemens and Toyota in Manufacturing, Henkel, Procter and Gamble and Unilever in Consumer Goods and Best Buy, Macy’s and Tesco in Retail and FedEx and DHL in Transportation. However, GXS has been challenged of late in generating any consistent profitability, as a number of previous acquisitions have added additional debt and expense burdens. Fiscal 2012 revenues were $487.5 million.
OpenText itself has displayed a hefty record of acquisitions in the Enterprise Content Management, Business Process Management and Information Exchange areas that includes the adsorption of different former 20 brands. According to the investor briefing and other press materials, the goal of this acquisition is to combine OpenText’s Information Exchange capabilities with GXS’s portfolio of B2B managed and integration services. According to the joint press release: “Upon closing of the transaction, OpenText and GXS together expect to serve more than 80,000 customers and support approximately 16 billion annual transactions in the cloud.” A briefing presentation further outlines the strategic rationale in the ability of OpenText to cross-sell GXS customers on broader information and content management tools while OpenText customers gain access to a broader B2B integration gateway including supply chain connectivity. The current plan calls for onboarding GXS to the OpenText operating model within two years.
Candidly, Supply Chain Matters was not surprised at today’s announced acquisition of GXS, given our previous impressions. As we noted in 2012, many of the large ERP and enterprise technology providers have been on a shopping spree of acquisitions in the B2B platform area. That included IBM’s former acquisition of the Sterling Commerce B2B platform, and SAP’s acquisition of Ariba and its Ariba Network. What was surprising, however, was the context of an EIM provider merging and acquiring a manufacturing, retail and logistics focused B2B platform provider. That is not to preclude the possibilities for building a broader combined platform of services, but more to understanding and appreciating the differences in mission critical business and supply chain transactional and order fulfillment needs with the parallel needs of secure enterprise information management flows. The need for clear vertical industry focused strategies seems fairly obvious.
By our lens, the real opportunity with the infusion of the added financial resources of OpenText is the opportunity to build out the GXS Trading Grid into broader value-chain planning, execution, content management and information integration services. That target alone requires bold vision and detailed strategic, tactical and development planning. It will be rather interesting for our supply chain management and B2B community to observe how today’s announcement may lead to this broader opportunity.
For the time being, both GXS and OpenText customers will have to wait and see what really transpires from today’s milestone announcement. For our part, Supply Chain Matters will periodically monitor progress.