Automation M&A - The New Playbook for Scaled Growth | Zinnov M&A CXO Event | Ulf Persson | Keynote

Thanks very much, Praveen, and thanks everyone for having me today. I think I'm going to take a slightly different approach to these 15 minutes of fame than Chris did, and thanks Chris for that presentation. I think it's very, very good. I think Kofax is well known as a very acquisitive and successful company building their strategy on acquisitions of other companies in addition to organic growth. With ABBYY, we've started out a little bit differently, and we are in a slightly different phase as well, and probably looking at the key performance indicators from a slightly different point of view. To us, what is really driving our value creation is customer satisfaction and customer excellence, which in itself is the underlying driver for growth. So growth is really what it's all about for us.

So ABBYY has always been a profitable company, and we remain profitable, but frankly, to us, what we're really trying to do is we reinvest that profit and go into growth mode to the extent we can. But it's been a lot of change, and what I wanted to use this short period of time is to go through some of the core changes and the key aspects of the transition. If you look at ABBYY in 2017 — it could have been 2016 or even early 2018, but let's use 2017 as a starting point — it was very much an OCR, optical character recognition, technology company with an application in capture as well, where you could probably say that together with Nuance, that Chris mentioned before, ABBYY was sort of the gold standard in OCR. And we had at the time one of the fastest or the fastest growing capture platform from a lower base than Kofax, admittedly, but still very successful. But we were mainly operating in a market that was primarily driven by demand from back-end application of this technology, whether it was selling of technology in itself or the application.

So what we wanted to do in the coming years was to address what was to be seen as a new market, as you could broadly call it digital transformation market or intelligent automation, where it was increasingly obvious that as you automate business processes, you will come across document dependencies and you will come across process understanding dependencies. So we decided we need to repurpose the technology and the capabilities and know-how of ABBYY into a new set of products delivered in a different way, and this is what we call the pivot to digital intelligence. But let me stop there and say before we got to the pivot to digital intelligence, we had to do quite a lot of things with the company to get there. So one of the things that we actually had to do was take a look at all the activities, all the assets, and we realized very quickly that we are doing far too many things that are not focused. So we divested quite a few technology bits and pieces; some of them we just simply closed down. I've mentioned two companies right now that are both successfully raising money in the US, where we are keeping a minority stake but not strategically part of our core focus. We also had to improve and change structures and organization, management processes, because being a back-end capture company or a technology company is a very, very different thing from being a rapidly growing what we call digital intelligence company. So a lot of things had to change.

And obviously COVID in 2020, on the one hand, didn't help; on the other hand, it really focused our minds, and we decided we need to do things faster than we had done in the past. So we need to speed up that transition and get ready for the pivot. And I agree with you, Chris, that although there were a few uncertain months in the late spring and early summer, I think we all saw a very strong second half of the year. So I was very pleased that we actually grew revenue in 2020 and had a record profit year, so that was all very good. Then throwing ourselves into the cold water in 2021 with this pivot to digital intelligence, which is effectively a new business model, all about subscription, cloud delivery, different market, a different ecosystem. Now obviously that didn't happen overnight; it was something that we had been building up to, but at the same time addressing a new market with a different ecosystem with new products, lots and lots of change. But the interesting thing that you're seeing here is as soon as we did that, the value of what we offer as ABBYY to our customers and ultimately shareholder value increased by quite a lot. And the reason I'm saying that is that if you look at an enterprise buyer, they would be much more interested in giving you a larger share of value if you're an important part of their digitization, digital transformation journey, rather than you know you're buying a back-end capture product or you're buying an OCR in itself technology. So as you were saying, adding a lot of artificial intelligence, machine learning to the products, making them very easy to buy, to install, to try, to expand, and lots of flexibility as to where this fits into the ecosystem with the enterprises, we had something that was quite new and that is really, really exciting.

So in order to get there, we also felt that we needed to better understand what is it actually that we are doing, what processes are we automating. And in order to understand that and express that better, we acquired a company called Timeline Pi, which was effectively a startup process intelligence company out of Philadelphia and Boston. So we acquired Timeline Pi in August 2019 it must have been, and integrated that quickly into something that became ABBYY Timeline as a product. But more importantly, the whole team, the development team in Hungary and the management team, were integrated into ABBYY's management structure very seamlessly, and we are very, very happy with the contribution that we've had from the Timeline Pi team. Pericom is a smaller acquisition. The reason we mentioned it here is that it was not so much, as you said, an expansion into the Asian market — we were already there — but it gave us a platform from which to grow more. So I look at the acquisition of Pericom as a sort of small platform acquisition into the Asian market, where we are going to be growing rapidly over the coming years.

The third phase, and this is what I think is probably more interesting to this audience, is what is going to happen now. Well, I think we have a good strategy; it's all about execution now, growing under recurring revenue and constantly improve on processes. But it will also be driven by acquisitions, and I think that those acquisitions will be out of sort of two different buckets. We'll see complementary technology acquisitions similar to the ones we did with Timeline Pi. I think there's a lot of smaller companies, and probably in the audience here today as well, that have some really interesting pieces of technology or point solutions that could be extremely useful for our verticalization as well. So I think there's a lot of good companies out there that frankly can be very much helped by joining forces with a somewhat larger organization with sales and marketing and get a turbocharging of their go-to-market strategy. But I think we're also going to see significant moves in the broader automation market. We're seeing what's happening with Blue Prism right now that are out there for sale. I would have thought that UiPath with their cash will be able to do something or be forced to do something to drive their own development and drive their own share price. We've seen, we're going to hear from Mike Electron, we've seen what IBM has been doing, we've seen what other larger companies have been doing. So I think we're going to see a year or two of quite substantial upheavals in what we call the broader automation market. And as for ABBYY, I think we are very well placed to benefit from that, and it would be interesting to see how that pans out.

Before I stop, I would like to say one or two words about change management. Obviously, when you acquire a company, it's very important that you get as much mileage out of that, unless you're buying a customer platform or just the technology where you perhaps don't really need the structures and the people you actually buy. But if you are in a growth phase and you really want to leverage also the people that you're buying, you need to make sure that you are aligned up front, because if you don't see eye to eye day one — and there's no guarantee that you will see eye to eye a year or two after that — but if you don't do it on day one, there are significant disruptive risks to that acquisition. And when you acquire a company, particularly a company with a sort of startup mentality, it's really important to understand that you can't kill that by being the larger company and the big brother and say, 'Here are all our structures, here all our processes, here all our bureaucracy, and you need to fold into that.' You need to give the acquired people, the acquired company, a lot of room to grow into your new home, so to speak. So don't lose that; you don't want to lose that entrepreneurial flair which is what has been driving those companies prior to the acquisition. So you need to make sure that you have that sort of core fit with the acquiring targets. And I think one very good way of minimizing or at least mitigating the post-acquisition risks is to work with the company, partner with the company for some time before you actually make that acquisition, if indeed that's a possibility. So I think change management is extremely important, but the best way to manage that integration and that change is to make sure that you are well aligned at the starting point of this joint journey after an acquisition.