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Chris Hicks would rather not relive his first days at Adobe Systems Inc., one of the world's largest software makers. He'd spent almost two decades working happily in a variety of roles at Accelio Corp., a much smaller Ottawa software maker that had fallen on hard times. Adobe swooped in with an offer in January 2002. It was a mixed blessing: employees were relieved that Adobe had rescued them from a hostile bid from a Canadian rival, but the new owner planned to lay off 200 employees--about a third of Accelio's head count.
The axe fell over two days in May 2002. Employees were told to stay at home until they were called in to meet with their supervisor and learn their fate. Ultimately, 150 positions--mostly administrative and sales--were terminated. Hicks was lucky. But many of his colleagues were out the door. "I've been around here a lot of years, and there weren't too many people I didn't know," says Hicks, an e-systems specialist. "I found it awkward to say, 'Is Bill still here? I haven't seen Bill in a couple days.'"
Hicks now worked for a branch office hundreds of miles from Adobe's headquarters in San Jose, Calif., and he didn't even have an office--his new job title wasn't high enough up the food chain in the new corporate structure, so he was stuck in a cubicle. There were plenty of reasons to see the glass as being half empty. But within weeks, Hicks was singing his new boss's tune. "When all was said and done," he says, "I was ready to put on the Adobe colours and go to work."
The story of how Adobe won him over--and how it transformed a troubled firm into a core asset--is replete with lessons about how opportunities are won and lost in the software business. And in a world where more than half of all mergers and acquisitions are deemed failures, it provides a rare example of how smart management can pull off a strategic buy--and make it work.
Adobe had swallowed smaller companies before. In fact, its history is a series of dramatic corporate reinventions. But the Accelio acquisition was part of perhaps its most dramatic shift yet. Adobe became a household name in the 1990s with popular desktop packages like Photoshop and Illustrator. CEO Bruce Chizen's plan was to shift focus away from the consumer market and begin selling business-document software to enterprise customers--a field where Accelio had earned its bread and butter. Adobe wanted to add new features to its ubiquitous portable document format, or PDF, that would be attractive to large companies, particularly governments and highly regulated businesses in financial services, insurance, aerospace, pharmaceuticals and law. Chizen has staked his company's future on this rapidly evolving market. Within five years, he says, "I think the world will know us as an enterprise software company. That will be the majority of our business."
And Accelio's technology--and former employees like Hicks--are crucial to Adobe's master plan.
Adobe and JetForm were both founded in 1982 by clever entrepreneurs who left much larger institutions to strike out on their own. But the two companies wound up in very different places.
John Warnock and Chuck Geschke, both defectors from Xerox, teamed up to develop the printer language PostScript. Adobe later evolved into a shrink-wrapped software firm with a heavy emphasis on desktop-publishing tools. Along the way it developed a reputation for technological and managerial forethought. By 2001, Adobe employed 3,000 people, and annual revenue exceeded US$1.2 billion.
JetForm's four founders, who had all left consulting firm SHL Systemhouse, set their sights on the new electronic-forms business, creating software that enabled customers to replace paper-driven processes. In 2001, JetForm was earning more than $100 million in annual revenue--and losing millions each quarter. Employees lost their jobs and remaining staff saw salaries slashed. Still, Hicks says, "I never sensed any kind of foreboding within our company. We always had a good, positive perspective."
Investors, however, were growing impatient, and JetForm was flirting with irrelevance. (Even in its hometown of Ottawa, residents mistook the company for a refrigerator maker or with the local baseball field it sponsored.) Some observers felt it had erred by continuing to focus on electronic forms while competitors addressed a wider range of business problems. CEO Kevin Francis--who replaced John Kelly in 2000--recognized that simple electronic forms weren't enough to keep JetForm going. He rechristened the company "Accelio" and focused development efforts on software to help companies electronically automate business processes that involved a lot of paper.
But Francis's time ran out. In December 2001, Waterloo, Ont.-based rival Open Text Corp. (TSX: OTC) blindsided him by launching a hostile takeover. Open Text's $68.5-million offer constituted a considerable premium on Accelio's moribund shares. Up at Mahogany Row--the nickname for the executive digs on the fifth floor of Accelio's office in Ottawa--the overture was poorly received. John Hogerland, who joined Accelio in 1997 and later became a vice-president and general manager, remembers hearing about the bid at a meeting hastily called by Francis. "The entire executive team was ticked off," he says. "We felt that we were on track to take the company back to profitability. We clearly were not going to be in a position to carry out our plans."
Francis fumed to the press that the price was "totally insulting." Open Text's hostile approach didn't go over well with employees, either. A software company's most important asset is its people. Most buyers would be loath to alienate them--but Open Text already had. "In our minds, they were undervaluing what we had worked so hard to achieve," says Hicks. "I was ready to man the ramparts--don't let those bandits in here."
Francis hired CIBC World Markets to locate other potential bidders. "He asked everyone around the table about companies they thought were good candidates," Hogerland says. "The one company I identified was Adobe." During the late 1990s, Adobe had begun to see opportunity in helping businesses automate processes through innovative electronic documents. Adobe's new Intelligent Document unit started developing new software centred around the PDF, but it soon realized it couldn't quickly develop a marketable product on its own. "My belief was that if Adobe had what we had from a technology perspective," says Hogerland, "they'd be well on their way to being able to do everything they wanted to do."
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