Former OpenText CEO Mark Barrenechea had also served as the company's chief technology officer.Justin Tang/The Canadian Press
Open Text Corp.’s OTEX-T board of directors has ousted long-time chief executive officer Mark Barrenechea and signalled it could sell off parts of the company, as chairman and former CEO Tom Jenkins moves back temporarily into an executive role.
That marks a sharp turn for Open Text, which bulked up for years through acquisitions but failed to deliver revenue growth from its existing businesses.
The enterprise software company based in Waterloo, Ont., said in a release before markets opened Monday that Mr. Barrenechea had been replaced on an interim basis by international sales executive vice-president James McGourlay and that an executive committee would be in charge until a new CEO is hired.
The committee includes Mr. Jenkins – who has been appointed chief strategy officer and added “executive” to his chairman title – along with other senior executives.
Open Text closed down 2 per cent Monday at $41.67 on the Toronto Stock Exchange.
Mr. Barrenechea, who joined the company in 2012, had also served as chief technology officer, and Open Text named its chief product officer, Savinay Berry, to fill the role. The company also said it had appointed retired major-general David Fraser as its lead independent director.
The top-level changes follow the exit of chief financial officer Chadwick Westlake last month after less than five months on the job. Mr. Westlake returned to lead his former employer, Equitable Bank, after the sudden death of CEO Andrew Moor.
Open Text also said it will work with its financial advisers “to explore portfolio-shaping opportunities that enhance focus on the company’s core information management for AI business and deliver long-term shareholder returns.” That could involve selling off what it deemed “non-core assets.”
But it offered no assurance that effort would result in any transactions and provided no timeframe to conclude the process. Mr. Jenkins was the original driving force behind Open Text’s long-standing mergers-and-acquisitions strategy and its pivot into content and information management after the company’s days as a pioneer in search technology in the 1990s.
The news “increases near-term execution risk,” BMO Capital Markets analyst Thanos Moschopoulos said in a research note, “but may ultimately be a catalyst in unlocking shareholder value.”
Open Text has been a serial acquirer for years while delivering anemic but positive organic growth – year-over-year revenue gains from existing businesses – typically in the zero- to 2-per-cent range. The company is now the sixth-largest technology name on the TSE, with a market capitalization of about $10.7-billion.
Mr. Barrenechea, a California-based tech veteran who previously led two U.S. enterprise software companies, would often say organic growth was important while delivering little to none of it. He also staunchly defended the company’s track record of delivering high operating profit margins, typically upwards of 30 per cent of revenue. Software investors typically prefer companies that grow revenues much faster, even if it means they deliver lower profits.
But organic growth had turned negative since Open Text bought Britain’s Micro Focus International PLC for US$5.8-billion in early 2023, and its stock price valuation sank to a 7.5-times price-to-earnings ratio, compared with its pre-Micro Focus average of 13-times and less than a quarter of the valuation of its peers.
Investors showed their displeasure with the sluggish stock price and Mr. Barrenechea’s rich pay package at last September’s annual meeting, decisively voting against the company on its “say-on-pay” proposal.
Open Text also made a rare divestiture during its 2024 fiscal year to help pay off debt accumulated for the purchase, selling Micro Focus’s mainframe computer unit to Rocket Software Inc. for US$2.3-billion.
But it was still a more sprawling operation than in the past, having diversified in recent years beyond its core business of enterprise content management into areas such as security, applications development management and information technology operations management.
The company pulled back last summer from its long-held acquisition strategy to focus instead on returning money to shareholders through dividend hikes and share buybacks and also promised to deliver more organic growth from its cloud business. By this past May, Mr. Barrenechea was saying the company could make further divestitures.
“I think the board was beginning to get frustrated in terms of the direction of the company,” said National Bank of Canada Financial Markets analyst Richard Tse in an interview.
“They kind of lost their way by becoming so broad. They were looking into having a more manageable, streamlined product line. My guess is Mark wasn’t doing it fast enough and as a result you’re in this situation.”
Mr. Moschopoulos said in an interview that the company’s “fundamental challenge” has been organic growth. “I think from an investor psychology perspective there is a significant difference between slightly positive organic growth versus negative organic growth.”
He added: “The story might have worked out better” if Open Text had sacrificed some operating profits to invest in the business and drive higher organic growth.