At first glance it is not obvious why Open Text has made a hostile takeover bid for Hummingbird as there appears to be little strategic benefit for either company. However, the move represents an attempt on the part of Open Text to strengthen its own position in the marketplace. At present, Open Text is itself in a vulnerable position. Its financial results have not been particularly good over the past couple of years, and it has had the task of integrating together all of its various acquisitions.
It has also been reinventing itself as a provider of solutions for its enterprise content management (ECM) platform, which is a positive move, and one that will ultimately increase Open Text’s market share. It has tight integration with SAP and other enterprise resource planning (ERP) products and many of its solutions bring together information from both unstructured and structured sources.
Hummingbird is also a provider of solutions for its ECM platform. It is particularly strong in the legal market, competing mainly with Interwoven in this respect. From a platform prospective, it acquired RedDot, a web content management (WCM) vendor, to strengthen its ECM solution, and provide a lightweight content management product for smaller organizations that require document management and WCM capabilities, but have no need for the breadth of functionality provided by a full-blown ECM solution such as Hummingbird Enterprise.
It also acquired Valid Information Systems, which provided it with R/KYV, a document and records management solution that is TNA 2002 approved, and has a large customer base in the public sector in the UK.
Both vendors are of a size where they are vulnerable to takeover. Although they are both major ECM players with large customer bases, they are clearly not of the same size as some of the other vendors with ECM platforms such as IBM and EMC, which have products in a number of different technology areas.
In addition, new entrants to the market such as Oracle are also multiple product vendors. With Microsoft also entering the fray, it will become increasingly difficult for vendors such as Open Text and Hummingbird to survive on their own. However, Hummingbird does have another string to its bow, in that it also provides connectivity products, and Open Text may have its eye on this as a way of diversifying.
It is certainly the case that for any independent ECM vendor to survive on its own, it will need to grow and diversify. Once all of the consolidation in the ECM marketplace is complete, we will be left with a few large multiple product vendors that provide ECM platforms. There will be a number of niche players that provide solutions for those platforms. It is in an attempt to stave off acquisition through growth that Open Text has made its offer for Hummingbird.
However, Hummingbird would be better served by accepting the Symphony bid, provided that Symphony honors its promise to invest in the company. In addition the move could be bad for Open Text, as there is too much overlap between the functionality of the products for it to be of strategic benefit, and the administrative task of integrating the two companies could be damaging to both companies and could detract from future development plans for Open Text.
