It wasn’t a surprise as it became common knowledge that Kofax was on the block earlier this year. So to nobody’s surprise, Kofax’s owners, Thoma Bravo, announced that it had sold the company to Clearlake Capital and TA Associates this past week. At the time, the asking price was circa $3B, and something a little north of that seems to have been the final sale price. The valuation seems high for a mature, slow growth product line with approximately $700-800M in annual sales. However, with EBITDA rumored to be well over 30%, the valuation is easier justified.
Kofax has a long history of being bought and sold since its inception in 1985. Furthermore, it has been an enthusiastic buyer of other firms, accumulating over 30 product lines. It is best known as a document capture vendor or IDP (intelligent document processing), as folks like to call it today; the firm has acquired and developed a wide range of automation products. This being said, the name Kofax remains synonymous with document capture. And that has become a bit of a problem over the past several years as document capture technology has become increasingly commoditized (Google, Microsoft, Amazon, etc.), and newer, lower cost and more powerful technology products have started to flood the market.
So what do we make of this sale? The first thing we have to note is the involvement of TA Associates, one of the top 50 PE (private equity firms) and a company we have some experience with. In our analysis, at least, TA Associates working alongside Clearlake Capital suggests Kofax will be broken up. The core elements remain with Clearlake, and smaller, more independent pieces spun off.
At Deep Analysis, we have tracked the upheaval in the document capture market in detail, the challenges to the old guard (including Kofax), and the rise of a new breed of vendors driven by advances in AI. What is worth repeating here is that Capture is not a solved problem. Though it may have been around for decades, few firms use it to its full potential. We will go as far as to say that it is a relatively greenfield/newfield market hence the shift in focus of firms like Appian and UIPath to grab a piece of the action. Older technologies for Capture were overly complex, expensive, and difficult to both implement and maintain. And though there is still a need for industrial strength, high volume capture products that need is just a niche in a much bigger market. We will watch with interest how this deal works out over the coming few years, as without doubt, there will be, at a minimum, a lot of restructuring and potentially several divestitures to come. It’s not the end of Kofax and its products, but it is the end of an era.
Finally, it is worth noting that the sale amount is in many respects a big vote of confidence in the future of paper used in business, as a large portion of Kofax sales has some relation to paper capture and data extraction. We’re not sure that is a bet we’d take as the pandemic and WFH have accelerated digital transformation away from paper documents. But things change slowly, and paper documents will certainly still be with us for many years to come.
You can read more of our analysis on the IDP market shifts here: