They say good things come in threes.
At least they do for Reynolds Bish.
The chief executive of Irvine-based Kofax is 3-for-3 in positioning the business software maker for a sale.
The rare feat was cemented on July 7 when Chicago private equity firm Thoma Bravo finalized its buy for Lexmark International’s enterprise software business, which consisted of Kofax, ReadSoft and Perceptive.
“It has proven to be a lot of hard work and certainly caused a lot of turmoil and distraction in the business,” Bish said. “I think we have come out of it with the best possible outcome.”
Kofax alone was expected to attract a sales price in the ballpark of $1.2 billion, considering its strong base of enterprise customers in the banking, insurance, manufacturing, retail, government and outsourcing sectors. Some recent deals for similarly sized software firms in the document capture and retrieval segment have fetched three times their annual revenue.
Kofax and ReadSoft, which pair up in the deal, employ about 1,800 globally and generates annual revenue of $400 million.
Bish will lead the combined operations of Kofax and ReadSoft from Irvine under the Kofax brand, which has more than 22,000 customers across the globe.
ReadSoft primarily targets retailers and manufacturers with its business software.
Under the deal, Lexmark’s Perceptive business was acquired by Hyland Software Inc., a Thoma Bravo portfolio company since 2007.
Kofax’ executive team will remain in Irvine, where the combined entity employs about 325, putting it among the six largest software makers in Orange County by employment.
“We’re focused completely on enterprise software and moving the company forward as an independent entity with its own strategy,” Bish said.
Kofax’ scanning software is intended to streamline the flow of information, eliminate paper, reduce costs, and improve customer service.
Financial terms of the sale were not disclosed, but Kofax’ recent history and Lexmark’s prior deals provide a working baseline.
Three Years, Three Sales
Kofax has changed hands three times in as many years, moving from a publicly traded company to a privately held one along the way.
The software maker got its start in Irvine in 1985.
The company was publicly traded for years in the United Kingdom, where its former holding parent company, Dicom Group PLC, went public in 2011.
Kofax officially moved its headquarters to Irvine—long its operational base—in 2008.
It began trading on the NASDAQ in December 2013 under the symbol KFX, raising $11 million in an initial public offering, which valued Kofax at about $536 million. The move—the first IPO in the local tech sector in several years—aimed to boost awareness and reflect the company’s changing base of investors as it further distanced itself from its U.K. roots.
It was sold in May 2015 for $1 billion to Lexington, Kentucky-based Lexmark, ending its short stint as a U.S. public company with a bang, attracting a nearly 50% premium on its share price. The deal nearly doubled the size of Lexmark’s enterprise software business to $700 million in annual revenue.
Lexmark was taken private in November in a $3.6 billion takeover by a consortium of Chinese investors that included Legend Capital Management Co. Ltd. in Beijing and two Hong Kong-based companies: electronics manufacturer Apex Technology Co. Ltd. and PAG Asia Capital, an independent alternative investment firm that manages $16 billion in capital.
Shortly after that sale, the Chinese investors engaged Bish to carve out the software business, which included 14 acquisitions over the years. ReadSoft was the 11th, and Kofax was the last.
In mid-April Bish struck a deal to sell Lexmark’s enterprise software division to Thoma Brava, which has more than $17 billion in capital commitments through several funds.
The value of the deal appears to fit the private equity firm, which typically invests between $100 million and $750 million but has spent more on “established companies that have a history of profitability, annual earnings (ebitda) greater than $20 million, and a strong management team with a record of accomplishment,” according to its website.
Sellers’ Team Rewarded
The latest sale provided another nice payday for Kofax’ management team and nearly 100 other employees who were given compensation and retention packages from the consortium of Chinese investors, who feared they would walk away before positioning the software unit for a sale, according to Bish.
“They were afraid if we left they would have a difficult time to sell the business,” he said.
Similar concerns led Lexmark to provide certain Kofax employees with lucrative incentive packages as it pursued potential bidders.
“It’s proven to be a very rewarding experience,” Bish said.
