Lexmark Targets Software Zone

Renowned imaging and printing solutions provider Lexmark International Inc. (LXK - Analyst Report) recently purchased Luxembourg-based software company BDGB Enterprise, along with its U.S. subsidiary Brainware Inc. Lexmark loosened up approximately $148.0 million to pay for the acquisition in cash.

Lexmark did not say much about the post-acquisition position of parent company BDGB Enterprise, but asserted that the company’s subsidiary, Brainware will form part of its Perceptive Software business segment. Brainware’s data capture and enterprise search solutions are expected to add value to the business process and content management software solutions offered by Perceptive Software. Lexmark’s May 2010 acquisition of Perceptive Software was a step into the enterprise content management market.

Brainware’s flagship solution ‘Brainware Distiller’ has gained traction as an intelligent data capture platform and has been installed by many Global 2000 companies (list of leading public companies selected by Forbes magazine). The newly acquired unit will not only strengthen Lexmark’s offerings, but also offer access to big customers such as Anadarko Petroleum Corp. (APC - Analyst Report), BB&T Corp. (BBT - Analyst Report), British American Tobacco plc (BTI - Snapshot Report), Halliburton Co. (HAL - Analyst Report) and Philip Morris International Inc. (PM - Analyst Report).

Lexmark made a similar acquisition in October 2011. The company took over Netherlands-based Pallas Athena for $50.2 million in cash and paired the unit with Perceptive Software. Pallas Athena’s capabilities were expected to enrich the business process management solutions offered by Perceptive Software. Moreover, Lexmark would be able to capture the opportunities in the EMEA region (Europe, the Middle East and Africa).

The Perceptive Software acquisition continued to play a material role in Lexmark’s recently-concluded fourth quarter. While the company saw its revenue decline on account of lackluster demand for its legacy consumer products, this was mostly evident in the 5.0% revenue decline in the Imaging Solutions segment. Perceptive Software revenue on the other hand grew a whopping 41.0%.

The success from Perceptive Software is forcing Lexmark to invest heavily in the segment, which led to a significant increase in operating expenses during the quarter. The above two acquisitions, which are expected to enrich Perceptive’s portfolio, is reflective of this continuous investments.

We see good growth prospects for Lexmark in the software sector. However, the company is also trying its luck in new hardware solutions. But the overall macro uncertainty could wash out its product demand ramps. Stiff competition from Hewlett-Packard Co. (HPQ - Analyst Report) in the Managed Print Services area is also a concern.

Currently, Lexmark has a Zacks #3 Rank, implying a short-term Hold rating.