Yesterday, OpenText announced it had entered into a definitive agreement to acquire customer communications management (CCM) assets from HP for (U.S.) $315-million. The Ottawa-based company said the deal would allow it to better serve its own CCM offerings.
Tse notes that this is the second transaction OpenText has made with HP in the past two months, and says he has increasing confidence in the pace of M&A. The analyst believes the company’s stock remains “very compelling”.
“While these HP assets appear to be an accretive acquisition that builds on existing OpenText technology, we believe it’s equally positive from the following perspectives: We wouldn’t have viewed CCM to be an important acquisition market for OpenText, but the fact OpenText is finding opportunities within the broad EIM market lends support to the company’s outlook that there’s a wide spectrum of acquisitions for this technology rollup story,” says Tse. “Our point is this, if CCM is a niche segment within EIM, how many other niche segments are there – likely many. Even within CCM, it appears there are at least 3-4 other companies OpenText could acquire or carve out going forward which further adds the potential growth opportunities from acquisitions in this niche segment.”
In a research update to clients today, Tse maintained his “Buy” rating on OTEX, but raised his one-year price target on the stock from (U.S.) $62.00 to $75.00.