Yes, but will it get “EASIER”? Open Text announces Easylink acquisition plans…

I was excited to learn that Open Text (NASDAQ:OTEX) (TSX: OTC) recently announced its acquisition of EasyLink (NASDAQ: ESIC) for a modest $7.25 per share. EasyLink, who’s latest balance sheet shows a $243M in assets versus a $143M in liabilities (source: Yahoo! Finance) has not seen a trade price at that level in a very long time.  Trading volume, which normally hovers in the 10’s of thousands of shares per day, jumped to 12M+ shares on May 2, 2012 after the announcement.

The acquisition of EasyLink introduces to OTEX an almost 10% more long term debt to service; something EasyLink themselves saw increase after the October 2010 acquisition of Xpedite. On the other hand, it also adds approximately $85.9M in OnDemand service revenues – a veritable cash cow despite the expenses (Source: ESIC’s 2011 fiscal year annual 10-K report).

Already, a law firm has announced that it is investigating the transaction and has concerns over the $7.25 share price. As quoted on Business Wire (May 12, 2012): “The investigation concerns possible breaches of fiduciary duty and other violations of state law by the Board of Directors of EasyLink for not acting in the Company’s shareholders' best interests in connection with the sale process to OpenText.”

I’ll forgo the legal and financial commentary until we hear more.

If the deal goes through, then OTEX now takes a huge leap in their OnDemand business of which the biggest chunk is reported to be Fax ($94.5M) and Production Email ($16.3M) services (Source: ESIC Fiscal year 2011 10-K report).  This puts a new dynamic on an already active market landscape when it comes to competitive positioning.  No other vendor will have such a breadth and scope of OnDemand and on-Premise Fax products and services.   Production fax players like Esker and Kofax had better take notice as to what OTEX has in store for the new game which they are defining each time they make an acquisition like this.