Kofax Ltd.’s short stint as a U.S. public company ended with a bang.
The Irvine-based business software maker was sold late last month to Lexmark International Inc. in Lexington, Ky., for $1 billion, a price tag that turned some heads on Wall Street.
Kofax had been working to boost investor perceptions of the company leading up to the deal, which carried a nearly 50% premium on its share price at the close of trading March 25, the day the sale was announced.
The company began trading on the Nasdaq in December 2013 under the symbol KFX, raising $11 million in an initial public offering.
The move—the first IPO in the local tech sector in recent years—aimed to boost awareness and reflect the company’s changing base of investors as it further distanced itself from its U.K. roots, which date to 1985.
“Since that time, there has been a huge transition of ownership from the U.K. to the U.S.,” Kofax Chief Executive Reynolds Bish told the Business Journal after the sale was announced.
The shift in investors led to sell-offs of the stock in recent months, and a few rough quarters had further hit the company’s share price. It didn’t help that a weakening Euro was trimming the company’s earnings overseas, or that Kofax was scarcely followed on Wall Street, with only a few investment banks initiating coverage.
“We were still underexposed, and that could have also played a role” in keeping shares down, according to Bish.
The confluence of factors reflected poorly on the company, but its operations nonetheless appeared to be undervalued as more potential suitors entered the fray and drove up bidding behind the scenes.
“It was a big premium,” said Bish, who has spent much of the past four months working with his management team on the deal. “From our perspective, it was a very fair market price.”
A closer analysis of the transaction reveals that the sale price closely tracks a key metric of other big deals in the past decade in the document-processing or enterprise-content-management space.
Hopkinton, Mass.-based EMC Corp., the world’s largest data center builder, acquired Captiva in 2005 for $275 million. IBM bought Costa Mesa-based FileNet Corp. a year later for $1.6 billion.
Ontario-based Opentext Corp., Canada’s largest software company, purchased Global 360 Holding Corp. in 2011 for $260 million.
The common denominator in each deal: The seller attracted a price that was about three times its annual revenue.
Kofax posted revenue of nearly $290 million in the 12 months through June, the end of its fiscal year.
The company and Bish had long eyed a move to a U.S. board from the London Stock Exchange, where it was traded since 1996.
The recession, lingering global economic concerns, and a volatile trading environment put those plans on hold for years.
“When the financial market improves, we’re in position to do it,” Bish told the Business Journal in 2011.
Two years later, the company filed a registration statement with the Securities and Exchange Commission for a public offering on the tech-heavy Nasdaq exchange.
Kofax entered 2015 as the seventh largest software maker in OC, with 295 local employees, according to Business Journal research. It has about 1,370 workers companywide.
Kofax’ scanning software is used by 20,000 customers worldwide to streamline the flow of information, eliminate paper, speed productivity, reduce costs and improve customer service.
The company competes mainly against Nuance Communications for the market-share lead in the image-capture software segment, which is expected to grow 6.3% per year from 2012 to 2016 to $2.5 billion in sales next year, according to Harvey Spencer Associates and Forrester Consulting.
Kofax, which moved its operational base from London to Irvine in 2009, was not contemplating a sale amid its roll-up strategy, but developments quickly turned as more potential suitors began lining up last summer.
“You have got to take advantage of opportunities as they arrive,” Bish said.
