Marlin Equity Partners & Abbyy – Our Thoughts

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Marlin Equity Partners & Abbyy – Our Thoughts

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Today there was important news in the Cognitive Capture market. ABBYY, a privately-held company, announced an investment from Marlin Equity Partners, which will make Marlin the largest shareholder. Terms of the investment were not revealed. Marlin is a global private equity firm that acquires businesses across diverse industries and has built a significant portfolio of software companies.

Today there was important news in the Cognitive Capture market. ABBYY, a privately-held company, announced an investment from Marlin Equity Partners, which will make Marlin the largest shareholder. Terms of the investment were not revealed. Marlin is a global private equity firm that acquires businesses across diverse industries and has built a significant portfolio of software companies.

What will this investment mean for ABBYY and its large customer base?

From what we gather, ABBYY has no shortage of plans that can benefit from the funding. They recently announced ambitious plans to launch a new cloud-native platform accompanied by a global AI skills marketplace for document intelligence. Both will require significant investment to ramp up into a viable solution. They are also working hard to grow their share of the largest invoice processing market of all, SAP, where OpenText has a dominant position; we know from experience that is a very expensive market to crack. And they established a beachhead with the major RPA vendors and will need capital to take advantage of the multitude of marketing opportunities these vendors offer. This all on top of an already-full product roadmap, as they press further into AI.

ABBYY clearly can use more money to accelerate these growth opportunities. They must quickly ramp up sales, services and marketing investments, or risk falling behind several new and nimble startups in Cognitive Capture that we have covered.

Is Marlin the right partner to fund these ambitious ventures? We’re not convinced. Private equity in general buys mature businesses with large customer bases and recurring revenues and provides liquidity for the existing shareholders. They then streamline operations to increase profitability and reward the shareholders of which they are now the largest. Any investment money put into the company is typically focused more on acquisitions to increase enterprise value, and less on building up existing product lines. PE typically holds companies for several years before selling them on.

That does not sound like the perfect investment partner for a company with ambitious growth plans. But is there ever a perfect investor? Perhaps Marlin will be like Thoma Bravo, the PE company who bought Hyland and has executed on an impressive long-game strategy to create an ECM behemoth.

But unlike Hyland, ABBYY is not a platform company that can be built up through complementary tuck-in acquisitions. We think ABBYY is more of a tuck-in candidate for an RPA vendor or a software company in a vertical market. Marlin’s investment effectively takes ABBYY off the market for a while since it normally takes years to generate sufficient shareholder value for a successful PE exit. Though there are exceptions, Alfresco was bought and sold by PE firm TH Lee in just a couple of years.

Perhaps Marlin sees ABBYY as a cross-portfolio play or a potential tuck-in to one of its own. It’s hard to tell. We took a look at the portfolio and there are no obvious synergies.

We have known the ABBYY management team for years and they have a well-earned good reputation in the Cognitive Capture market. We caught up with ABBYY CEO Ulf Persson and he was clear that the investment will focus on growth. We hope that will help the company progress towards its ambitious goals.

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