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How understated software titan OpenText plans to accelerate its growth

Waterloo’s other tech superstar plans to spend billions on acquisitions

OpenText headquarters in Waterloo, Ontario

OpenText, unlike its Waterloo neighbour BlackBerry, has never courted consumers. (OpenText; Gerrit de Jonge)

Quick, name a Waterloo, Ont.-based tech company. Do your thoughts jump to BlackBerry? Or does a new name come to mind? Perhaps it’s one that made headlines of its own this year, but with a good-news story: the announcement of a $2-billion expansion that’s expected to create up to 1,200 jobs across Ontario.

OpenText, Canada’s largest software company with revenues of $1.37 billion, is on a growth tear. Since 2008, it’s acquired more than 10 companies, the most recent of which was January’s $1.17-billion deal to purchase GXS Group, a U.S.-based cloud software provider. In media interviews following the purchase, CEO Mark Barrenechea said he expected to spend at least another $3 billion on acquisitions over the next five years.

“I’ve never felt better about the health of our company,” Barrenechea says. “I’ve also never felt more compelled about moving faster.”

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For the most part, analysts and investors feel good about the company too. In an April earnings report, OpenText announced it had generated $442.8 million in revenue in its third quarter, up 31% year-over-year. Cash flow and operating income had grown as well, up 21% and 43% year-over-year, respectively. The GXS purchase, meanwhile, helped confirm the company’s position as a global leader in enterprise information management, says Global Maxfin Capital’s Ralph Garcea. “This quarter just solidified OpenText’s status as a premier player,” Garcea says.

Unlike BlackBerry, OpenText has never courted consumers. Founded in the early 1990s as a startup at the University of Waterloo, the company has focused on the enterprise market from the outset. Put simply, OpenText is a software company that helps organizations keep their data in check by serving the specific needs of their clients, from records management and archival services to website and workflow management.

“There’s a lot of moving parts—it’s not a singular product company,” says Richard Tse, an analyst at Cormark Securities. “They’ve done a very good job of managing the business in light of those complexities.”

Hundreds of clients use OpenText software to operate in industries that require years of data to be stored for reference and regulatory compliance—health care, telecommunications, government agencies, and the oil and gas sector are just a few examples. Other features of OpenText’s software suite allow clients to create online content, share information and interact with one another over corporate networks.

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Recently, OpenText has made significant moves toward offering services in the cloud and increasing mobility for its clients, which include the U.S. Department of Justice, Lockheed Martin, General Motors and even the London Underground. In 2012, the company bought EasyLink Services, a developer of cloud-based messaging services. Its January purchase of GXS Group strengthened its B2B cloud services further.

The GXS acquisition nudged the company in a new direction, too: electronic commerce. GXS’s customers use its cloud-based platforms to pay accounts and introduce products and services, among other things. Because of the difference in focus, some analysts weren’t convinced the purchase made sense, but most agreed the price seemed reasonable and suggested market watchers would approve. They were right: shares surged to a record high of $87.99 after the deal was announced.

Barrenechea wants OpenText’s growth to continue. He estimates his company has about 10% of the global market, but notes that in a rapidly consolidating industry, the real leader will soon need a 20 to 30% stake. (Outside Canada, Barrenechea says, OpenText has its eye on emerging markets in Southeast Asia, eastern Europe and the Middle East.)

“M&A is an integral part of actually going faster,” says Tom Jenkins, who helped set the company on a path of acquisition during its early days. In 1995, when OpenText was only a search-engine operation, then-CEO Jenkins worked to acquire Chicago-based Odesta, which had developed a software program for sharing documents. Combining the two technologies led to Livelink, an OpenText flagship product that allows users to collaborate on projects via the web. In 2004, the company’s purchase of German company IXOS brought a host of document-archiving technologies—another prominent OpenText service.

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Analyst Tse describes OpenText as “an acquisition growth story with elements of organic growth.” He also says he believes the company may have untapped resources within its intellectual property portfolio. “By virtue of being around for so many years, [they] have been involved in a lot of IP and have acquired a lot of it, but I think the opportunity that is different is that it’s a dormant asset.” OpenText recently launched legal action against cloud-based file-sharing service Box, which included about 200 claims of patent infringement. While a California judge has already denied one preliminary injunction, the $268-million suit covers 12 patents in total.

The company is also exploring the opportunities presented by the big data phenomenon. “We feed big data,” says Barrenechea. “We are the source of record—and have been for over a decade—of big piles of corporate unstructured information: banking records, HR systems, invoices.”

While much of the logged information is qualitative rather than numerical, Barrenechea imagines a time when businesses will be able to ask valuable questions of the data OpenText has been storing for them. “How effective is my recruiting? Why are people leaving? Why do people stay? I’m looking for this skill in this part of the country—you get to ask interesting analytical and predictive questions.”

For now, though, Barrenechea is relishing the company’s current position. “Sometimes things converge,” he says, “and you find yourself in a very good place.”