Documentum sold by EMC to OpenText

September 12^th, 2016 – OpenText Signs Definitive Agreement to Acquire Dell EMC’s Enterprise Content Division, including Documentum.  This post will provide our thoughts on the upcoming purchase.

What was the deal?

Since early this year when Bloomberg announced that EMC was selling Documentum, we have posted some of our thoughts:

• October 12th, 2015 – Dell to Buy EMC for 67 Billion
• April 7th – EMC said planning to sell Documentum Business Amid Dell Deal (Bloomberg)
• September 7th – Documentum Sale – What now?

Some key points of the deal:

• Deal includes all of ECD (Documentum, InfoArchive, Captiva as well as consultants)
• Purchase price of $1.62 Billion (2.7 times FY15 revenue of $599M)
• Target to onboard to OpenText in first 12 months
• Expected to close within 90 to 120 days
• Subject to regulatory approvals and customary closing conditions

TSG thoughts

A couple of things caught us by surprise about the announcement.

• The purchase represents a continued consolidation of the legacy ECM market.
• The purchase price of $1.62 billion was much larger than we would have expected. It must say good things about both ECD’s profits (estimated at 30% of the $599M) as well as the ability of OpenText to procure cheap debt to finance the deal (announcement mentioned 1 Billion in Debt).
• We had hinted about OpenText as a potential purchaser since they, much like EMC, had been consolidating a suite approach recently buying (Brava in 2015 as well as many others as documented on the OpenText Wiki page).  Given the amount of product overlap, we didn’t think it was a high probability and we were leaning toward private equity.  The high price speaks loudly that not only was OpenText in the position to procure the debt but they also had a strong desire to procure the ECD division.

Some of our preliminary thoughts:

• As a public company, OpenText can offer options and other incentives to the former EMC employees that had their options vest as part of the finalization of the Dell purchase of EMC. We would anticipate that OpenText would look for synergies in both Sales and Engineering so we would anticipate some layoffs.  We are still worried about key ECD employee and consultant retention given the OpenText brand as well as layoffs.
• We are concerned about product overlap with OpenText already providing many of the capabilities provided by ECD/Documentum. We saw some of these issues with the IBM/FileNet, Oracle/Stellent purchase where products (and clients) were orphaned as consistent solutions were chosen.  We would anticipate a bias within OpenText for the OpenText products but, given the large purchase price and technical components of Documentum, could see it lean toward Documentum as well.

Preliminary thoughts from John Newton (Documentum co-founder, Alfresco founder)

I can just imagine the turmoil this is going to cause in both OpenText’s and Documentum’s customer bases. Will the Documentum repository supersede the OpenText repository or vice versa? Will there be a migration strategy? Will OpenText integrate yet another ECM system haphazardly as they have in the past? Will they just try to deal with the coexistence with a confusing message of what to use when?

Look here for more later as additional information comes available.

See our thoughts from last year in regards to how Documentum compares to Alfresco, one of the newer disruptors in the ECM space.