Mark Barrenechea is just fine with being steady and boring. Investors in the company he leads, Open Text Corp., seem to like that, too.
While tech companies that disrupt the world and conquer consumer markets command enormous valuations, Mr. Barrenechea has delivered solid shareholder returns by leading the Canadian enterprise software stalwart on a steady path of value-creating acquisitions of flat or declining businesses, culminating in Open Text's largest deal, its $1.62-billion (U.S.) purchase of the enterprise content division of Dell Technologies Inc. known as Documentum, which closed last month.
"I believe very much that steady and predictable progress trumps everything else," Mr. Barrenechea, Open Text's chief executive and chief technology officer, said in an interview. "I pride myself on [creating value by] being a disciplined capital allocator," he added. "We would rather go slower, more predictably, on profitable growth than chase the early part of the market."
Read more: Open Text bulks up on enterprise content with $1.62-billion Dell deal
The market has endorsed that approach, and the latest deal. The Waterloo, Ont., company completed a huge stock offering in December to help pay for Documentum that netted $584.6-million and was sold to investors at no discount to the share price. Open Text's market value has already appreciated by roughly the cost of the deal since it was announced in September, and now stands at $11.4-billion (Canadian), making it Canada's third most valuable publicly traded technology firm.
"They've shown a very good ability to acquire assets at good valuations and integrate them," said BMO Capital Markets analyst Thanos Moschopoulos, who raised his target price on the stock last month to $39 from $36.50.
Mr. Barrenechea, a veteran American tech industry executive who previously led Silicon Graphics, Inc., joined Open Text five years ago, transforming it from a hodgepodge of software businesses into a comprehensive digital platform for the internal processes of large customers. The stock has appreciated by more than 230 per cent since he joined, including a 25 per cent increase last year.
The Open Text story is mostly about acquisitions: the company typically exceeds 10 per cent revenue and earnings growth annually, but Mr. Moschopoulos says organic growth from existing businesses has been flat since 2008. (Revenue and earnings per share in the second quarter ended Dec. 31 were $542.7-million and 54 cents, both ahead of expectations) That said, Mr. Moschopoulos noted the company inked 25 new licence deals last quarter valued at more than $1-million apiece, up from nine in the same period a year earlier, credited to better sales execution. "That momentum suggests it's not just acquisitions" driving revenue growth, he said.
But the two big opportunities at hand are integrating the Documentum acquisition, and making more acquisitions. With Documentum, Open Text now owns its largest competitor in the enterprise content management sector, where vendors sell software that helps business and government customers digitally store and access vast amounts of corporate information. While revenue in the acquired company may take a hit during the next year as Open Text digests the deal and books integration costs, management expects to book $60-million in cost synergies.
Meanwhile, Mr. Barrenechea, said "the pipeline remains active" for acquisitions in the target area of enterprise information management, though he added larger deals such as the Documentum purchase "are quite rare for us." (Open Text's previous $1-billion-plus deal, its purchase of GSX Group Inc., happened three years ago). Rather, he prefers deals that add between $100-million and $200-million in annual revenue, which would roughly translate into deal values of between $200-million to $400-million.
That said, "we don't have a limit right now on what we can do" regarding acquisitions, Mr. Barrenechea said. "If the right opportunity came along in our strategic strike zone in value, we could execute on it."
Sean Silcoff