In its first big move since getting new private equity ownership in July, Irvine-based Kofax Inc., a software document handler, has bought crosstown rival Ephesoft Inc.
The deal brings together one of Orange County’s largest and more established software firms—Kofax was founded in 1985 and generated about $550 million in revenue last year—with a fast-growing up-and-comer in the document processing industry.
Ephesoft was founded in 2010 and is seeing year-over-year growth of more than 30%, CEO Ike Kavas told the Business Journal in May. It was expecting to reach $100 million in ARR—annual recurring revenue—within three or so years, Kavas said at the time.
Terms of the acquisition were undisclosed. Ephesoft officials told the Business Journal in May, prior to striking a deal with Kofax, that it was preparing to raise $50 million in a Series C round later this year. It last reported raising $15 million in 2017.
Processing, Automation
Both companies’ software helps businesses keep track of the growing number of electronic files and information needed to keep enterprises running smoothly.
Their processing, automation and data handling offerings let customers pull information from all sorts of documents, allowing them to retrieve data and information much more quickly.
“There is some overlap in our product offerings,” Kofax CEO Reynolds Bish told the Business Journal on Aug. 18 after the deal was made public. “But they are different and have been deployed at different customers.”
Kofax boasts more than 25,000 customers including Aetna, Goldman Sachs and mining giant Rio Tinto.
It ranked No. 21 on the Business Journal’s Aug. 22 list of largest software companies in Orange County by local headcount. Among locally based software companies, Kofax ranked No. 12 by local headcount and third by total employees.
The expanded company will have about 2,300 employees globally with about 300 to 325 of them in Orange County, according to Bish.
Ephesoft, with its local base at 8707 Research Drive in Irvine, counted 130 employees companywide and has more than 1,000 customers globally, including Pepperdine University, Honda Logistics and Alliance Bank.
Office Consolidation
Since Kofax has sufficient space in its offices at Discovery Park in the Irvine Spectrum due to remote working, “we will be consolidating the Ephesoft employees into the Kofax facility here in Irvine,” according to Bish.
Ephesoft has such a strong customer following that the name and brand will be kept at least for the time being, officials said.
“We don’t want to do anything to disrupt the business that they’ve developed,” Bish said. “Over time, we may change that.”
Acquisitions like Ephesoft “allow us to extend our customer base, our reach into prospective new customers and also the reseller channels that we’re able to utilize in selling our products on an indirect basis in addition to selling direct to larger enterprises,” according to Bish.
Bravo $3B Sale
It’s been a whirlwind summer for Kofax and the intelligent document processing tools it offers.
The Ephesoft purchase comes less than a month after Thoma Bravo completed its sale of Kofax to follow private equity firms Clearlake Capital Group LP of Santa Monica and TA Associates of Boston. While financial terms were not released of the deal that was announced in April, news reports said it may have been worth $3 billion, including debt.
“We’ve been impressed by Reynolds and his team’s ability to scale and transform Kofax into an end-to-end platform within workflow automation software, particularly at a time when customers are increasingly looking to digitally transform their businesses,” Clearlake co-founder and Managing Partner Behdad Eghbali and Managing Director Paul Huber said in a statement last month completing the deal.
The purchase of Ephesoft is Kofax’s second acquisition in two months. On June 20, it said it had bought Tungsten Corp., a London-based B2B e-invoicing network that facilitates and streamlines complex invoice-to-pay processes.
The two Irvine-based companies operate globally. Kofax has employees in 31 countries while Ephesoft has offices in the United Kingdom, Munich and Singapore, among other cities.
Profitable Business
Bish estimates that Kofax will bring in $625 million in revenue this year, “being a little conservative” and “possibly more.”
Bish says Kofax’s 45% EBITDA margin last year shows the business is “highly profitable.”
Kofax often competes in the document automation space with Open Text Corp. (Nasdaq: OTEX) and IBM (NYSE: IBM). Open Text, which has a $10.1 billion market cap, generated $3.5 billion in sales for the year ended June 30. Bish was on the board of directors of Pasadena-based Guidance Software, which was sold for $240 million to Open Text in 2017.
Return Home
The latest deal is a homecoming for Ephesoft CEO Kavas, who worked at Kofax from 2003 to 2010 before starting his own firm.
Kavas, who plans to “continue leading Ephesoft’s organizational efforts,” was upbeat about his return to Kofax.
“Kofax will enhance Ephesoft’s go-to-market reach and ability to scale the business,” he said in a statement. “Our customers will also benefit from Kofax’s larger market reach, and together we’ll be able to offer them the broadest range of software and solutions to accelerate their digital workflow transformation journeys.”
Ephesoft’s offering introduced in the spring—Transact 2022.1—includes the ability to handle what it calls “unknown documents,” thanks to its artificial intelligence and deep learning neural network technology, according to the company.
“AI will look at the documents the way humans do,” according to Kavas.
About 90% of the documents handled by Ephesoft for customers are PDFs or other digital files.
About 10% of the documents Ephesoft handles for customers are old-fashioned paper copies, according to Kavas.
Digital Transformation
Kofax software handles masses of written information digitally, such as letting firms automate their invoice processing and accounts payable processes, aiding companies in their shift from the paper era to the digital one.
The amount of paper in offices has been constantly declining in favor of electronic formats.
To clear up one possible misunderstanding when the companies talk about “documents” that generally signifies something other than a piece of paper, Bish said “document” could be a scanned picture, an image via a mobile device, a PDF, Word file, XML data stream or an Excel spreadsheet—the software can extract content from any of them.
Reynolds Bish:
From Accounting to Software
Reynolds Bish graduated with a degree in accounting, finance and quantitative analysis from Penn State University in 1974. A career in accounting was his initial plan.
“I wanted to work in Boston or San Francisco,” and interviewed with the top accounting firms of the time.
“I went to San Francisco first, received offers from all four, canceled my trip to Boston and accepted an offer from PricewaterhouseCoopers. After two years, I received a rapid promotion and was approached by a company named Fafco—which was in the solar energy business—which offered me a position as its CFO—which I accepted. Among other milestones there I took them public on Nasdaq in 1981.
“A year later I left Fafco to co-found Covalent, which produced turnkey production management software and hardware for print shops,” he said.
“After that I never looked back and stayed in software.”
He later served as CEO of Unibase Systems in the mid-1980s, and co-founded Captiva Software where he was CEO from 1989 until 2005.
Irvine, London, and Back
Kofax Inc. was founded in Irvine in 1985. It later moved to London and was traded on the London Stock Exchange under the Dicom name. Bish joined the company in 2007.
“Shortly after joining I convinced the board to move the headquarters to Irvine and change the name to Kofax in early 2008, but it remained listed on the LSE,” he said.
“In 2013, I convinced the board to delist from London and simultaneously relist on Nasdaq.” It was later taken private, and sold again last month for an undisclosed price to two private equity firms, TA Associates and Clearlake Capital.
“I’ve committed to staying here for somewhere between three and five years to continue being CEO of Kofax and leading it forward at least for that period of time,” Bish told the Business Journal.
Bish said in April that the rest of the Kofax management team would also be staying on following the latest transfer of ownership.
—Kevin Costelloe
