Straight Talk: OpenText to Acquire GXS

November 11, 2013
10:45 pm

gob·ble·dy·gook

ˈgäbəldēˌgo͝ok,-ˌgo͞ok/

noun: gobbledygook – language that is meaningless or is made unintelligible by excessive use of abstruse technical terms; nonsense

Gobbledygook. As I listened to the investor relations call on OpenText’s intent to buy GXS, I heard gobbledygook. At least, this was my take. The OpenText script focused on how ECM+EIM=EIM Cloud-based Services. My reaction was, “Really?”
In the analyst call I heard abstruse, technical jargon strung together to justify an outcome. I prefer straight talk. I know my readers do. Here is my point of view.

Straight Talk

On November 5th, OpenText announced the intent to buy GXS for $1.2 billion ($800 million in debt, $265 million in cash, and $100 million in equity). The purchase price for GXS is approximately 2.4X 2012 revenues. This is a low multiple.
I get it. GXS has been saddled with debt and struggling in a commoditized market. It has been tough for them to upgrade their architecture. However, when I compare the purchase price of GXS to the current trading value of E2open at 6X revenues, I feel bad.
Many might ask, “Who is OpenText?”OpenText is a $1.2 billion technology software provider with roots in content management and the sharing of digital assets. The company is now 22 years old with a strong reputation of delivering products for marketing groups and ecommerce.

Why Does It Matter?

Electronic Data Interchange (EDI) is the workhorse of the extended value network. We are at the dawn of building meaningful business networks. Today, despite the emergence of other means of B2B interconnectivity, over 50% of orders and purchase orders move through the extended value network via EDI. Only 7% move via trading networks. EDI is, in essence, network plumbing connecting, transforming and extracting data that needs to be harmonized, synchronized and cleansed. And, we all know that plumbing is not sexy.
The race is on to automate the extended value network. Historically, the EDI providers have provided a valuable service. EDI is much like the sewer systems running underneath our cities. It is dirty, and specialized work. The EDI specialists speak their own language. They are very focused and specialized. Many supply chain leaders take it for granted. To successfully be a player in this market requires both a strong technical and process mastery. The processes need to be built with the end in mind.
At the start of the decade, there were three large standalone business-to-business Electronic Data Interchange providers: GXS, Inovis and Sterling Commerce. With the announcement of OpenText’s offer to pay $1.07 billion in cash and $100 million of its stock for GXS, the three large players are now gone. They are absorbed into large entities. GXS will become a subsidiary of OpenText Corporation within the next quarter. The leader of the supply chain organization does not have a clue on the definition of ECM, EIM or EIM cloud-based services. They just want something that works reliably.

My Take?

As I listened to the OpenText summary of why they bought GXS, I hung my head. I like GXS. I felt bad for the GXS employees that I know and respect. The investor summary of the acquisition is laden with IT acronyms and gobbledygook. The technobabble was layered thick in the call. When IBM purchased Sterling Commerce, Sterling became less important to the market. Based on the OpenText call, I fear that the same could happen with GXS. It is a risk for the extended supply chain and business leaders.
GXS is a far cry from an EIM solution (combination of enterprise integration and content management). I feel that there are two to three degrees of separation in the technology stack. As a result, I think that this acquisition is good news for the smaller and more nimble B2B service providers. I expect Datalliance, Descartes, E2open, Elemica, Exostar, GT Nexus, iTradeNetworks (Roper Industries) and SPS Commerce to benefit. I believe that it will be neutral for SAP. (I also believe that SAP, and their work with Ariba to build business networks, will become one of OpenText’s largest competitors.)
I strongly believe that solutions to connect the extended business network will not come from ERP. I also believe that the solutions built for CRM and SRM are not the natural adaptors or APIs to connect the extended value network. It is not about integration. This view is too simplistic. Instead, it is about workflow, synchronization, translation, and harmonization.

My Wish for OpenText

Many supply chain leaders depend on their VAN for services. Please don’t mess this up. Plumbing is not easy, but it is necessary.
My wish is for you to first understand the business proposition and then apply technology. The market needs a leader. Step up and fill these shoes, but please leave the Gobbledygook at home.

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