Industry analyst examines Adobe offer to acquire Accelio
'When elephants mate, the little folks can get hurt accidentally'

8 April 2002

Editor's Note: Accelio shareholders will vote at a special April 9 meeting to "approve a plan of arrangement pursuant to which Adobe Systems Incorporated ... will acquire Accelio through the acquisition of certain of Accelio's assets and all of Accelio's outstanding equity securities in exchange for common stock of Adobe valued at U.S.$72 million."
SOURCE: Accelio Proxy Circular


By Harvey Spencer of HarveySpencer.com

On February 1, Adobe announced that it was bidding C$4.50 (US$2.85) a share's (approximately $73 million dollars) worth of its stock in order to buy Accelio (formerly JetForm) and that both boards were supporting the deal. This comes on top of the unsolicited offer that OpenText made for Accelio back in December, which Accelio rejected on January 15th. The OpenText offer at C$2.75 (US$1.74) seemed like an attempt to get the company very cheaply. Accelio Proxy Circular It all reminded me a bit of the OpenText offer for PCDocs a couple of years ago, which was topped by Hummingbird. It seems that OpenText kicks the door open and someone else jumps in!

To be sure Accelio has been having hard times - the stock price peaked at nearly US$25 back in 1998 and with a brief respite in early 2000, it has been continuously down since that time before stabilizing at about $2.50 recently. Accelio/Jetform had a very nice suite of programs and workflow to create and manage electronic forms throughout the enterprise and they sold this into many large corporations and government for internal forms together with integration services. But it was expensive - as Adobe pointed out, the average sale is between $200,000 and $2M. Initially, the company missed the Internet as a low-cost delivery mechanism and the use of HTML as a standardized forms formatting tool that lets virtually anyone create an e-form and capture the data using desktop tools inside or outside of the corporation. This caused revenue to drop and after a pause, Jetform (as it was then) announced a Portal strategy which left all of us scratching our heads - the idea, as I understood it, was to leverage from their forms design skills to provide a repository of forms and presumably the basic workflow associated with those forms types. It did not fly.

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So, back to the drawing board they went. Changing the name to Accelio, JetForm completely revamped its products to leverage from XML (similar to the strategy that eiStream is taking interminably long to complete) and it seems as if this may be turning the corner. Although their product revenues continued to decrease over the six months ended October 31 from C$30M to C$19M, their service revenues, which are the key to the future, increased from C$19M to C$25M with the biggest percentage increase (from a small base) coming from consulting services. The only cloud on this horizon is that a major part of the overall services revenue increase seems to come from customer support.

Enter Adobe. What did they see in this picture to their liking? Adobe's business and distribution is very different from Accelio's. I extracted the following information regarding what Adobe does and how it sells its products from Adobe's most recent 10Q:

WHAT
"Adobe builds ....... software solutions for Network Publishing, including Web, print, video, wireless, and broadband applications. Its graphic design, imaging, dynamic media, and authoring tools enable customers to create, manage, and deliver visually-rich, reliable content."

WHO
"We license our technology to major hardware manufacturers, software developers, and service providers, and we offer integrated software solutions to businesses of all sizes."

HOW
"We distribute our products through a network of distributors and dealers, value-added resellers ("VARs"), systems integrators, and original equipment manufacturer ("OEM") partners; direct to end users through Adobe call centers; and through our own Web site at www.adobe.com."

WHERE
"We have operations in the Americas; Europe, Middle East, and Africa ("EMEA"); and Asia."

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Compare that with what I think Accelio does and how they distribute:

WHAT
Accelio builds software solutions to capture and process business-transactional data more efficiently and assists with the implementation of this.

WHO
Accelio licenses their technology to large corporate and governmental end users.

HOW
Accelio distribute their products directly and/r in conjunction with large integrators such as Accenture.

WHERE
Accelio has operations in the Americas, Europe, and Asia (including Australasia).

So clearly from this we can see that Adobe intends to expand dramatically from its historical roots of publishing and authoring sold through multiple-tier channels into an end-user sale with substantial integration.

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WHY?

Firstly, Adobe is seeing a decline in its core publishing markets with on-going weakness in the printer business, but an increase in its e-paper business. It defines this as allowing users to speed the distribution of information with documents that can be viewed, approved, and printed across a broad range of hardware and software platforms. Its core product is Acrobat, which has become the standard for Internet document publishing.

Secondly, Adobe believes that this e-paper area will be a $3 billion market by 2004. This fits with some other industry projections and if so Adobe feel that this opportunity will substantially outweigh its other markets.

Thirdly, Adobe wants to increase its direct interaction with its end users and sees increasing opportunity in the area of professional services. It likes the fact that Accelio sells to the world's biggest companies and governments and it likes the idea of an average sale in the $200,000 to $2M range. It complements its low-volume, box-oriented products.

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So, all in all the two companies seem to fit together although there is obvious risk to Adobe in creating channel conflict with its reseller base. Probably they see this as limited since Accelio addresses large companies, which do not tend to buy through resellers.

Who is affected? Apart from the other e-forms vendors such as Shana who now have a real problem, the workflow vendors such as Documentum, EiStream, and FileNET will feel the impact from this. At the lower end, Cardiff Software, which has built a business on the back of using Adobe's PDF for e-file storage and retrieval using its Liquid Forms product, will probably find that it is pushed into smaller companies. When elephants mate, the little folks can get hurt accidentally.

About the author: Harvey Spencer is a long-time industry analyst and president of Harvey Spencer Associates. This article was originally published on edocmagazine.com and is reprinted with the author's permission.


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