Lexmark Set To Acquire Swedish Company ReadSoft

May.19.14 | About: Lexmark International, (LXK)

Summary

ReadSoft will be integrated with Perceptive Software, and this will give Lexmark a foothold in the fast growing content and business process management market in Europe.

The Perceptive Software division is the company's second biggest business unit and makes up over 10% of Lexmark's estimated value.

Perceptive experienced annual growth of 53% in 2013 and reported $239 million in revenues for FY13.

Lexmark International (NYSE:LXK) is set to acquire ReadSoft, a Sweden-based document and business process company that offers both on-premise and cloud software, for $182 million. ReadSoft will be integrated with Perceptive Software, and this will give Lexmark a foothold in the fast growing content and business process management market in Europe. In this article, we will explore the importance of the Perceptive Software division and why this acquisition is strategically important for Lexmark.

Perceptive is Key To Revenue Growth

The Perceptive Software division is the second biggest business unit and makes up over 10% of Lexmark's estimated value. As Lexmark plans to become an end-to-end solutions provider, Perceptive Software is becoming an increasingly important division for Lexmark. Perceptive experienced annual growth of 53% in 2013 and reported $239 million in revenues for FY13. Lexmark has guided for 15% growth in Perceptive's revenue for FY14. The company has also set a goal of $500 million in software revenues by the end of 2016. To achieve this goal, Lexmark continues to build its product portfolio through inorganic growth.

Prior to the this acquisition, the company completed seven acquisitions (PACSGEAR, Saperion, Brainware, ISYS, Nolij, Acuo and Twistage) that have been integrated into Perceptive Software and are driving the growth in the company's software business. We expect the seamless integration of Perceptive's array of solutions with MPS to bolster revenue for the company. Currently, we expect Preceptive's revenues to grow from $239 million in 2013 to over $500 million by 2020. However, the revenues from this division will be significantly higher due to this acquisition. ReadSoft generated $117 million in revenues in 2013. Moreover, we expect that revenues will continue to increase at a robust pace in the future due to organic and inorganic growth.

ReadSoft To Strengthen Lexmark's Presence In Europe

According to Lexmark, the addressable market for both electronic content management (ECM) and business process management (BPM) is fairly large and offers good growth rates. It expects that content and process management software will account for about 30% of revenue by 2015. Lexmark estimates that worldwide spend for content and process management in 2013 exceeded $10 billion. Content and process management is expected to grow at 10% per annum in the near foreseeable future. [1]

According to Gartner, EMEA is the second largest content and process management software market in the world. This acquisition, which requires Lexmark to pay $6.11 cash for Series A and B shares for a total cash consideration of $182 million, would strengthen Lexmark's footprint in Europe and across the world. ReadSoft, with revenues of $117 million in 2013 (as noted), operates in 70 countries and has more than 625 employees. Furthermore, the company has more than 12,000 customers worldwide, including BASF, Siemens, Bosch, HSBC, ING, Lego and John Deere, and Lexmark can now deliver solutions to these enterprise customers. [2] The acquisition of ReadSoft accelerates several strategic Lexmark objectives, including rapidly expanding its document business process solutions footprint in EMEA.

The deal, subject to shareholder and regulatory approval, is expected to close in the second quarter of 2014.

We currently have a $39.71 Trefis price estimate for Lexmark, which is 9% below its current market price.

Disclosure: No positions.