Lexmark International Inc. LXK has agreed to acquire information technology service provider Kofax Limited KFX for $1 billion, or $11 per share in cash. The acquisition represents a massive premium of 46.7% to Kofax’s Tuesday closing price of $7.50 per share.
Following the news, shares of Lexmark jumped around 7% yesterday in after-hours trading whereas Kofax shares were up nearly 46%. The company funded the acquisition through its non U.S.-based cash. The acquisition is expected to close in the second quarter of 2015.
This record breaking acquisition for Lexmark indicates a strong leap toward the content and process management software market. The said market is predicted to grow at a CAGR of 10% and we expect Lexmark to capitalize on this opportunity.
Also, Lexmark will have exposure to more than 70 countries in which Kofax offers its product. In addition to the substantial growth in the size of its business, the Kofax acquisition will help Lexmark to double the operating margin of its enterprise software business to roughly $700 million.
Headquartered in Irvine, CA, Kofax provides smart process applications, which help companies to simplify business critical processes. It also offers process management, analytics and mobile competencies for organizations. Kofax says it is has over 20,000 customers and more than 850 channel partners worldwide with 2014 sales of $297 million. This expertise will help Lexmark in bridging the technical gap in its system.
The Kofax acquisition is also expected to impact Lexmark’s balance sheet from the distribution of obtainable foreign cash. Also, the company will see inherent synergies with the said acquisition.
"The acquisition of Kofax enhances our best-in-class offerings so our customers can capture, manage, access, and act upon their information more efficiently, and extends Lexmark into the high-growth smart process applications market," said Paul Rooke, Lexmark chairman and chief executive officer.
We believe that the acquisitions will introduce more higher-margin software-related businesses for Lexmark. The resultant revenue growth could even offset the revenue declines in the hardware business.
Apart from this, Lexmark recently expanded its Perceptive Software business with the acquisition of Toronto-based medical image technology provider, Claron Technology Inc., in an all cash-deal worth $37 million. The acquisition is expected to strengthen the presence that Lexmark already has in the health care market.
Until this happens however, Lexmark will be impacted by the narrowing scope for printing solutions due to increasing use of digital technology and e-commerce. The competitive climate is also not encouraging, given the strength of other major players, such as Xerox Corp. XRX and Hewlett-Packard Co. HPQ.
Currently, Lexmark carries a Zacks Rank #3 (Hold).
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