Open Text Corp. keeps adding to its war chest even as it continues a string of smaller acquisitions – bolstered Thursday when the company announced it would buy Colorado legal-tech company Catalyst Repository Systems Inc.
The deal is worth US$75-million in cash. But the Waterloo, Ont.-based software company’s chief executive, Mark Barrenechea, told The Globe and Mail that the company has another US$2-billion ready to deploy when the time was right, thanks in part to nearly US$600-million of cash and equivalents on hand, and an adjusted earnings-before-interest-tax-depreciation-and-amortization margin of 42 per cent.
With recent volatility in the tech sector, Mr. Barrenechea said his company has seen company valuations decrease, favouring buyers such as Open Text. “You can expect us to put more capital to work,” he said.
Open Text helps a wide range of enterprise customers organize and analyze information, and has made dozens of deals in the past two decades, including the US$310-million purchase of Georgia cloud-data-management company Liaison Technologies Inc. late last year. It has recently made strong efforts to push into cloud-based services. Catalyst helps lawyers sort through documents in the legal discovery process, adding to a suite of legal services Open Text already has from other acquisitions, such as its 2016 purchase of Recommind Inc.
“Catalyst is part of a string of pearls to give us a lot of strength" in legal services, Mr. Barrenechea said.
Thanos Moschopoulos, an analyst with Bank of Montreal’s capital markets unit, said that because two years have passed since Open Text announced its US$1.62-billion acquisition of document management platform Documentum, he expects the company is due for its next big acquisition. “Part of the reason we have an [outperform rating] on the stock is we expect them to be aggressive in deploying their capital,” he said in an interview.
Open Text reported its results for its fiscal second quarter ended Dec. 31 on Thursday. Analysts had been positive about its stock ahead of the results. Richard Tse of National Bank Financial Markets called it one of his “best bets” this quarter; CIBC’s Stephanie Price called it an “outperformer,” highlighting the weak tech sector as an opportunity for Open Text acquisitions.
Open Text said Thursday that quarterly revenue rose just a tenth of a percentage point year-over-year to US$735-million. It reported a profit attributable to the company of US$104-million, up 23 per cent, with a diluted earnings-per-share of 39 US cents. Shares closed Thursday on the Toronto Stock Exchange at $46.71, up 30 cents.
In the company’s continuing dispute with the U.S. Internal Revenue Service, Mr. Barrenechea said that Open Text will “vigorously defend" its position. The company first revealed a draft “notice of proposed adjustment” from the IRS four years ago that sought to increase its U.S. federal taxes for the 2010 and 2012 tax years. Last summer, the company said the dispute was over a “potential aggregate liability” of US$725-million including taxes, penalties and interest. Mr. Barrenechea said Thursday that the total was “approximately the same,” with potentially additional accrued interest.