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The story behind the RedDot acquisition
The Deal
On June 23 2005, Hummingbird Ltd. announced the acquisition of RedDot solutions for approximately $47.5 million (USD) plus an earn-out of $5.5 million (USD). While some analysts declared the deal unsurprising, it certainly came as a surprise to the employees, partner and customers of both firms. In a meeting with NLC senior management, Detlef Kamps, President of RedDot Solutions suggested that the deal was negotiated very quickly - from initial overture to completed due diligence in less than two months.
The speed of the deal suggests one of two possibilities:
- Hummingbird was highly motivated to get a deal done
- Hummingbird is experienced in acquisitions and knows the longer the negotiations, the less likely a deal will be signed.
We expect that both possibilities hold some truth. Hummingbird first announced a partnership with RedDot in February, 2002. By some measures, this partnership has not driven a great deal of success. It is difficult to point to more than a handful of integrated deployments and most of these are concentrated in the Queensland government in Australia. So one might wonder at Hummingbird's apparent eagerness.
A deeper look suggests a different story. Hummingbird's own efforts at addressing the mid-market in general have not produced significant results. In contrast, RedDot has built a successful product, a robust partner-channel and an end-to-end strategy that is admirably well tuned to reach small and medium sized businesses.
Given that small and mid-market companies are responsible for much of the recent growth in IT investment, Hummingbird's motivation becomes more apparent.
What It Means for Red Dot
Over the short-term, this deal will probably mean very little to clients and prospective clients of RedDot. Until the earn-out is complete, you can be certain that RedDot will be focusing on their core business and Hummingbird will be focusing on theirs. It's possible the firms will initiate some additional light-weight integration of their technologies, but we rather suspect that even this will wait until after RedDot has either succeeded or failed in meetings its earn out targets.
During our meeting with RedDot, we received repeated assurances for our customers that RedDot will continue to operate independently over the mid-term, as a wholly owned subsidiary of Hummingbird. Detlef Kamps expressed it this way "If the boat is running why change it?" It may be that Hummingbird's experience with acquisitions is making them careful not to undermine the value of the company they have purchased. Or it may just be that no one wants to see the moniker Humming-dot in the marketplace.
From a broader perspective, RedDot customers and prospective customers now have an upgrade path. Clients wanting to upgrade from RedDot's departmental document management system will be able to adopt Hummingbird's enterprise-class solutions without sacrificing RedDot's best-of-breed Web Content Management solution.
Hummingbird clients can expect much-improved capabilities for publishing content over the public internet. This assumes the developers are able to resolve the deep rift in underlying principles between document management and web content management solutions:
- DM solutions focus on the document as the element to be created, modified, tracked and managed.
- WCMs systems view the published web "page," complete with navigation and search capabilities as the core element.
- We'll follow with interest how Hummingbird resolves this conflict.
The RedDot-Hummingbird deal also gives hope to Government of Canada employees struggling with RDIMS implementation This Hummingbird-derived records management system is the defacto standard for the Canadian federal government, but it has been growing increasingly long in the tooth. Integration with RedDot may solve the most pressing challenges RDIMS users face.
The Bottom Line
Over the short term, it is business as usual. RedDot will operate as an independent entity. The long-term outcome is less clear. It is entirely possible that RedDot will deliver the mid-market to Hummingbird and dramatically expand the number of companies that firm can touch. It is equally possible that Hummingbird's notoriously carnivorous sales team group will view the revenues generated by RedDot partners as an opportunity for growth. Pursuit of this path will almost certainly undermine RedDot's reach within the mid-market and undermine Hummingbird's strategic reasons for the acquisition for the sake of short-term revenue.
If nothing else, it is going to be interesting to watch.07/2005, Randy Woods
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