SC TO-C

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE TO

(RULE 14d-100)

Tender Offer Statement Pursuant to Section 14(d)(1) or 13(e)(1)

of the Securities Exchange Act of 1934

 

 

Carbonite, Inc.

(Name of Subject Company)

Coral Merger Sub Inc.

(Offeror)

Open Text Corporation

(Parent of Offeror)

(Names of Filing Persons)

COMMON STOCK, PAR VALUE $0.01 PER SHARE

(Title of Class of Securities)

141337105

(Cusip Number of Class of Securities)

Gordon A. Davies

EVP, Chief Legal Officer and Corporate Development

275 Frank Tompa Drive, Waterloo, Ontario, Canada N2L 0A1

519-888-7111

(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Filing Persons)

 

 

Copies to:

Neil Q.Whoriskey, Esq.

Cleary Gottlieb Steen & Hamilton LLP

One Liberty Plaza

New York, New York 10006

212-225-2000

 

 

CALCULATION OF FILING FEE

 

Transaction Valuation*   Amount of Filing Fee*
Not applicable.   Not applicable.
 
*

A filing fee is not required with this filing as it relates solely to preliminary communications made before the commencement of a tender offer.

 

☐ 

Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

Amount Previously Paid: Not applicable.      Filing Party: Not applicable.
Form or Registration No.: Not applicable.      Date Filed: Not applicable.

 

Check the box if the filing relates solely to preliminary communications made before the commencement of a tender offer.

Check the appropriate boxes below to designate any transactions to which the statement relates:

 

 

third-party tender offer subject to Rule 14d-1.

 

issuer tender offer subject to Rule 13e-4.

 

going-private transaction subject to Rule 13e-3.

 

amendment to Schedule 13D under Rule 13d-2.

Check the following box if the filing is a final amendment reporting the results of the tender offer: ☐

If applicable, check the appropriate box(es) below to designate the appropriate rule provision(s) relied upon:

 

 

Rule 13e-4(i) (Cross-Border Issuer Tender Offer)

 

Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)

 

 

 


This filing relates solely to preliminary communications made before the commencement of a tender offer by Coral Merger Sub Inc., a Delaware corporation (“Merger Sub”) and a wholly owned subsidiary of Open Text Corporation, a Delaware corporation (“OpenText”) to acquire all of the outstanding shares of common stock, par value $0.01 per share (“Shares”), of Carbonite, Inc., a Delaware corporation (“Carbonite”), at a purchase price of $23.00 per Share in cash, without interest pursuant to the Agreement and Plan of Merger, dated as of November 10, 2019, by and among OpenText, Merger Sub and Carbonite.

Additional Information

The tender offer described in this communication has not yet commenced. This communication is provided for informational purposes only and does not constitute an offer to purchase or the solicitation of an offer to sell any securities. At the time the tender offer is commenced, OpenText and a wholly owned subsidiary intend to file with the Securities and Exchange Commission (the “SEC”) a Tender Offer Statement on Schedule TO containing an offer to purchase, a form of letter of transmittal and other documents relating to the tender offer, and Carbonite intends to file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the tender offer. OpenText and Carbonite intend to mail these documents to the Carbonite stockholders. Investors and security holders are urged to read those documents and other relevant documents filed or to be filed with the SEC carefully when they become available as they will contain important information about OpenText, Carbonite, the tender offer and related matters. Those documents as well as OpenText’s and Carbonite’s other public filings with the SEC may be obtained without charge at the SEC’s website at www.sec.gov. OpenText’s public filings with the SEC may be obtained at OpenText’s website at http://investors.opentext.com/and Carbonite’s public filings with the SEC may be obtained at Carbonite’s website at https://investor.carbonite.com/. The offer to purchase and related materials may also be obtained (when available) for free by contacting the information agent for the tender offer.

Forward Looking Statements

Certain statements in this communication may contain words considered forward-looking statements or information under applicable securities laws. These statements are based on OpenText’s current expectations, estimates, forecasts and projections about the operating environment, economies and markets in which the company operates. These statements are subject to important assumptions, risks and uncertainties that are difficult to predict, and the actual outcome may be materially different. OpenText’s assumptions, although considered reasonable by the company at the date of this communication, may prove to be inaccurate and consequently its actual results could differ materially from the expectations set out herein.

For additional information with respect to risks and other factors, which could occur, see OpenText’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other securities filings with the SEC (which are available at the SEC’s website at www.sec.gov) and other securities regulators. Unless otherwise required by applicable securities laws, OpenText disclaims any intention or obligations to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


EXHIBIT INDEX

 

Exhibit
No.

  

Description

99.1    Transcript of Open Text Corporation investor call on November 11, 2019
99.2    Presentation made available by Open Text Corporation on its website to investors on November 11, 2019
99.3    Message to Carbonite, Inc. employees on November 11, 2019, by Mark J. Barrenechea, CEO & CTO of Open Text Corporation
99.4    Tweets and retweets posted on November 11, 2019 and November 13, 2019 by Open Text Corporation and certain of its executives
99.5    LinkedIn posts or likes made on November 11, 2019, November 12, 2019, and November 13, 2019 by Open Text Corporation and certain of its executives
EX-99.1

Exhibit 99.1

 

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CORPORATE PARTICIPANTS

Harry E. Blount Open Text Corporation - Senior VP & Global Head of IR

Madhu Ranganathan Open Text Corporation - Executive VP & CFO

Mark J. Barrenechea Open Text Corporation - Vice Chairman, CEO & CTO

CONFERENCE CALL PARTICIPANTS

Paul Steep Scotiabank Global Banking and Markets, Research Division - Analyst

Paul Treiber RBC Capital Markets, Research Division - Associate

Raimo Lenschow Barclays Bank PLC, Research Division - MD & Analyst

Richard Tse National Bank Financial, Inc., Research Division - MD & Technology Analyst

Stephanie Doris Price CIBC Capital Markets, Research Division - Director of Institutional Equity Research & Software and Business Services Research Analyst

Steven Li Raymond James Ltd., Research Division - SVP

Thanos Moschopoulos BMO Capital Markets Equity Research - VP & Analyst

PRESENTATION

Operator

Thank you for standing by. This is the conference operator. Welcome to the OpenText Corporation Conference Call. (Operator Instructions) The conference is being recorded. (Operator Instructions) I would now like to turn the conference over to Harry Blount, Senior Vice President, Investor Relations. Thank you. Please go ahead.

 

 

Harry E. Blount - Open Text Corporation - Senior VP & Global Head of IR

Thank you and good morning, everyone. With me on the call today is OpenText’s Chief Executive Officer and Chief Technology Officer, Mark J. Barrenechea; and our Executive Vice President and Chief Financial Officer, Madhu Ranganathan. We have some prepared remarks followed by a question-and-answer session. This call will last approximately 30 minutes with a replay available shortly thereafter. I’d like to take a moment and direct investors to the Investor Relations section of our website, investors.opentext.com, where we posted a presentation that will be referred to during this call.

And now I’ll proceed with the reading of our safe harbor statement. Please note, during the course of this conference call, we may make statements relating to future performance of OpenText as well as in relation to today’s acquisition announcement that contain forward-looking information. While these forward-looking statements represent our current judgment, actual results could differ materially from a conclusion, forecast or projection in the forward-looking statements today.

Certain material factors and assumptions were applied in drawing any such statement. Additional information about the material factors that could cause actual results to differ materially from a conclusion, forecast or projection in the forward-looking information as well as risk factors that may project future performance results of OpenText are contained in OpenText’s recent Forms 10-K and 10-Q as well as in our press release that was distributed earlier this morning, which may be found on our website.

We undertake no obligation to update these forward-looking statements unless required to do so by law. In addition, our conference call may include discussions of certain non-GAAP financial measures, and reconciliations of any non-GAAP financial measures to their most directly comparable GAAP measures may be found within our public filings and other materials, which are available on our website.

 

    

 

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And with that, I’ll hand the call over to Mark.

 

 

Mark J. Barrenechea - Open Text Corporation - Vice Chairman, CEO & CTO

Thank you, Harry, and good morning. And we have exciting news to share with you on our announcement today to acquire Carbonite. We’re also providing, as Harry mentioned, an investor deck that can be found on investors.opentext.com and believe you’ll find it informative. So let me get right into it.

Today, we announced a definitive agreement to acquire Carbonite. Founded in 2005, Carbonite is a market leader in cloud-based data protection and endpoint security to small and medium-sized companies, or SMB, including prosumers, that is, professional users. They have created an amazing business, scaled cloud service operations and a superior channel distribution organization.

Data protection and endpoint security are strategic industrial markets that are relevant to all size customers, enterprise, SMB and prosumers. The total addressable market, or TAM, for these end markets is over $15 billion and growing mid- to high single digit. Cloud, security, information protection and endpoints are all strategic EIM considerations. We’ve included these areas in our strategic TAM and market analysis since our acquisition of Guidance Software and including our most recent Investor Day materials.

OpenText is already providing technologies directly in or adjacent to these areas, Guidance Software, for example, for endpoint detection and response in digital forensics; Core for collaboration, share and data retention and protection; and InfoArchive for data backup management and governance in the enterprise. Carbonite is the first vendor to combine data protection and endpoint security, and together with OpenText, will be in a market-leading position for total endpoint protection that also includes digital forensics and endpoint response.

Let me speak a little to OpenText as a consolidator and our commitment deploy capital. The acquisition represents our ninth cloud acquisition, including EasyLink, GXS, Recommind, ANX, Covisint, Hightail, Catalyst, Liaison and as announced today, Carbonite. This places OpenText as a leading cloud consolidator. All assets combined will be approaching 2 exabytes under management, 100 million endpoints, millions of subscribers and cloud operations at hyper scale. Scale matters in the cloud.

Let me speak about the transaction and the terms of the agreement, which are a continuation of our total growth strategy. Total purchase price of approximately $1.42 billion, inclusive of Carbonite cash and debt or $23 per share via a tender offer. Carbonite published their Q3 September results this morning with Q3 revenue of $126 million and adjusted EBITDA of 30%, trailing 12-month revenue of $405 million and trailing 12-month adjusted EBITDA of 29%.

On the revenue side, their trailing 12-month TTM does not include the full effect of Webroot revenue as Carbonite has only been including Webroot financials for 2 full quarters. On adjusted EBITDA, we are onboarding a business that is operating well above where ECD or GXS was at the time of acquisitions. This is approximately 2.8x trailing 12-month revenues when you annualize for Webroot. On a reported TTM basis, excluding the full annual revenue contribution of Webroot, the ratio would be 3.5x, but we don’t think that’s the right way to look at it.

Carbonite has strong recurring annual revenues, or ARR. Approximately 90% of the business is recurring. We are modeling low single-digit organic growth once the business is integrated. There is no equity consideration, no dilution, no transition services agreement in this transaction. We’ll be using our existing balance sheet cash and existing revolver.

You can expect significant expansion of cloud revenues, cloud margins, adjusted EBITDA dollars and cash flows in fiscal 2021, our first full year of operations. We expect these strong cash flows to continue to grow our dividend. Our net leverage ratio is currently 2 -- under 2x. Carbonite will bring the ratio to a modest 2.5x. And within 4 to 6 quarters, we expect our ratio to be back below 2x.

We can also expect the transaction to be accretive in fiscal 2021, and we expect the combination of growth, cash flows and invested capital to deliver high-teens ROIC on a stand-alone basis. The transaction is expected to close within 90 days from today.

 

    

 

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Let me also highlight the strength of the operating team that has the proven experience to integrate acquisitions and create sustaining value. In 2013, we acquired GXS for $1.16 billion. In 2016, we acquired ECD for $1.62 billion. These businesses have been successfully integrated into OpenText and are creating sustained value.

We look forward to applying the OpenText business system methods and disciplines to Carbonite, and we’re targeting to have Carbonite on our operating model within the first 18 months, that is no later than the end of fiscal ‘21. We have strong confidence in our approach in our playbook and our experience from GXS Documentum and our many other cloud acquisitions to deliver upon the expectations.

I hope these summary comments are helpful. As per our normal practice, financial projections and target models will be provided upon the closing of the transaction, including any updates to our F’20 target model and longer-term aspirations.

Few additional comments on Carbonite. 1,500 employees and world-class talent in security, data protection and cloud operations at scale. Their talent is amazing. 14,000 premium managed security providers, or MSPs, VARs and OEMs. This distribution channel is a superior channel, and I have seen many of them through my 30 years of experience. 300,000 small and medium-sized businesses, 7 million end users, 50 million endpoints being protected, 250 petabytes plus under management, over 200 patents.

Carbonite is mainly a U.S. business with key locations in Boston, Massachusetts; Lewiston, Maine; Salt Lake City; Broomfield, Colorado; and San Diego, California. There’s also a good-sized team in Mississauga, Ontario, Canada, and some key non-North American locations include Dublin; Derby, U.K.; Sydney, Australia; Tokyo, Japan; and Paris, France.

In summary, today’s announcement meets all the criteria for a strategic acquisition by OpenText. Carbonite is a market leader in a strategic end market. Endpoints are mission critical, and we like the large customer installed base of SMBs, MSPs and prosumers as well as their superior distribution organization.

The transaction is financially compelling. We expect significant cloud revenue growth, cloud margin expansion, adjusted EBITDA dollar expansion, cash flow expansion, dividend growth to be accretive in fiscal ‘21 and funded from our balance sheet in existing facilities.

And lastly, I like the focus. Our enterprise team can focus on the enterprise. SMB prosumer can focus on SMB prosumer as we leverage this new route to market. We have many existing OpenText products that will benefit from this focus and new route. The more we can connect the customer to OpenText products, the more we win.

I’d like to conclude my remarks with a thank you to the brave men, women and families of who have honored Canada and the United States with their service and sacrifice on this Remembrance and Veterans Day. We remember and say thank you on this November 11.

With that, let me open the call to your questions. And operator, if you could do that, we appreciate it. Thank you.

 

 

QUESTIONS AND ANSWERS

Operator

(Operator Instructions) Our first question is coming from Raimo Lenschow of Barclays.

 

 

Raimo Lenschow - Barclays Bank PLC, Research Division - MD & Analyst

Congrats on the deal. Quick question, Mark, on like -- you’ve seen an enterprise player. Now this is very much getting into the SMB space. Can you talk a little bit about the motivation there? You mentioned some of that [hold], but then I’m also wondering about what’s the kind of cross-sell opportunities [you’re going through].

 

    

 

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Mark J. Barrenechea - Open Text Corporation - Vice Chairman, CEO & CTO

Yes. Well, the -- you broke up a little bit there on your cell phone. But let me try to take this. First is we see Carbonite relevant in all channels, and we’re going to go to market 3 ways, enterprise, SMB and prosumer, professional users, professional consumers, and I’d like to call them prosumers. So we see Carbonite relevant in all 3 areas.

Second is there’s OpenText product that’s going to benefit from the Carbonite channel. And this is an impressive superior channel organization that they’ve built over the last 14 years, and it’s world-class, and I’ve seen many of them. For example, us being able to bring our Guidance Software into their SMB distribution; being able to bring Core, our Box competitor product into the SMB channel. The largest Box use case is data protection. And some other -- our Hightail offering as well.

So I think it’s quite a nice relationship. We’re #1. We see EIM relevant 3 ways: enterprise, SMB, prosumer. We see the ability to bring data protection and security into the enterprise, and we see the opportunity to bring endpoint detection and response, Guidance Software and Core into the SMB channel. So we think it’s quite a nice relationship.

Let me also talk about our business network endpoints, right? We have posted 2 million trading partners and 100 million end users on our business network doing commerce all day long. So we have an opportunity to go out to an additional 100 million end users, who are connecting or doing a transaction on our cloud, and we can bring the Carbonite capability. So we think there’s just amazing cross-pollination, if you will, between the

2 businesses.

 

 

Operator

Our next question is coming from Stephanie Price of CIBC.

 

 

Stephanie Doris Price - CIBC Capital Markets, Research Division - Director of Institutional Equity Research & Software and Business Services Research Analyst

I wonder if you could talk a bit about the integration in terms of difficulty, in terms of what the biggest challenge might be. I mean you mentioned margins in the 30% range, but then you also mentioned kind of an 18-month time line onto the OpenText model?

 

 

Mark J. Barrenechea - Open Text Corporation - Vice Chairman, CEO & CTO

Yes. Stephanie, thanks for the question. I like to -- I like using sports analogies. And I think every day, you’ve got to come in the office as if it’s opening day, right? You take nothing for granted.

But as I look at integrating Carbonite into OpenText, we got a lot of experience from larger-scale GXS and Documentum. And the business is mainly U.S., so that’s a real pro for us, real positive. That’s mainly a U.S. business. So we don’t have the big complexities of international.

It’s a peer purchase, so we don’t have the complexities of a TSA or asset carve-out. And they have very solid systems. I mean, there’s some work to do between Webroot and Carbonite, but it’s a pretty straight line integration given it’s U.S. -- it’s a business directly into our scaled systems. And we gave 18 months versus our usual 12 months, to give us a little buffer, right, to -- many companies don’t get full synergies until 3 years out. The OpenText model is very accelerated at 12 months. So we gave ourselves a little more time with 18 months, and we hope to beat it.

 

 

 

 

    

 

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Stephanie Doris Price - CIBC Capital Markets, Research Division - Director of Institutional Equity Research & Software and Business Services Research Analyst

Okay, perfect. And then just one last quick one for me. Can you comment on any tax implications? You mentioned that’s mainly U.S. Should the tax rate remain relatively unchanged?

 

 

Madhu Ranganathan - Open Text Corporation - Executive VP & CFO

Do you want me to take them, Mark?

 

 

Mark J. Barrenechea - Open Text Corporation - Vice Chairman, CEO & CTO

Sure.

 

 

Madhu Ranganathan - Open Text Corporation - Executive VP & CFO

Yes. And Stephanie, thanks for the question. So we will need to do more work. Having said that, I will say, if you look at Carbonite’s public disclosures, their effective tax rates have been less than 20% barring some one-time adjustments in valuation allowances. And as you know, our starting point with the Canadian statute to date is about 26.5%. But I think combining the 2, we definitely expect to get tax efficiencies over, say, 1-, 2-, 3-year period.

 

 

Operator

Our next question is coming from Thanos Moschopoulos of BMO Capital.

 

 

Thanos Moschopoulos - BMO Capital Markets Equity Research - VP & Analyst

Mark, can you clarify what Carbonite’s mix was as far as prosumer versus SMB versus enterprise?

 

 

Mark J. Barrenechea - Open Text Corporation - Vice Chairman, CEO & CTO

Sure. So we’re looking at, let’s call it, less than 10% enterprise closer to 50% SMB, maybe a little closer to 40% consumer, prosumer.

 

 

Thanos Moschopoulos - BMO Capital Markets Equity Research - VP & Analyst

Okay, that’s helpful. And then as far as direct versus indirect sales, what was their focus?

 

 

Mark J. Barrenechea - Open Text Corporation - Vice Chairman, CEO & CTO

Mainly through the channel, a vast majority through their MSPs, VARs and OEMs, mainly a channel business.

 

 

Thanos Moschopoulos - BMO Capital Markets Equity Research - VP & Analyst

And are there any channels that you need to maybe deemphasize or exit such as OEM, for example? Is that something you’re going to look to leverage?

 

    

 

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Mark J. Barrenechea - Open Text Corporation - Vice Chairman, CEO & CTO

Absolutely. They -- just going to the investor deck for a moment, I guess, to the page quickly. They have -- just bear with me for a moment. It’s in the appendix on Slide 16. Their BrightCloud Threat Intelligence, for example, is a new service around threat hunting and threat intelligence. And there are some very impressive OEMs within that business, names you would recognize, the top 10 technology companies in the world, top 10 clouds in the world, which we’re part of, but this is an OEM business, the BrightCloud Threat Intelligence. And it’s a real gem in the portfolio, I think highlights the OEM opportunity. So we just love this superior channel. We’re looking to help them get on a global platform with OpenText, really actually bring up the OEM piece of the business and give them more product from OpenText.

 

 

Thanos Moschopoulos - BMO Capital Markets Equity Research - VP & Analyst

Great. And then finally, for Madhu, is it too early to talk about the level of deferred revenue write-down we should anticipate?

 

 

Madhu Ranganathan - Open Text Corporation - Executive VP & CFO

If we could come back to that at the time we close, I think that will be the -- like the best thing for us. Of course, Carbonite has its own disclosures on the deferred revenue. But when we acquire, it’s going to be our PPA that’s going forward. So I would say, if you can wait until the closing when we come back, it would be great

 

 

Operator

Our next question is coming from Paul Treiber of RBC Capital Markets.

 

 

Paul Treiber - RBC Capital Markets, Research Division - Associate

Just hoping if you can elaborate on potential revenue synergies across -- synergies with OpenText particularly bringing Carbonite’s portfolio to OpenText’s enterprise customer base and then also into the international markets.

 

 

Mark J. Barrenechea - Open Text Corporation - Vice Chairman, CEO & CTO

Yes. Sounds great, Paul. Thanks for joining the call. So I look at the largest ecosystem we have inside of OpenText, and that starts with our business network and the end users where we partner with Nestlé and FedEx and Starbucks on our supply -- Citibank, and how, through that business network, we can get to an endpoint.

We have close to 100 million end users in our ecosystem. So we’re definitely going to leverage and be able to target those 100 million end users with the Carbonite offering. So that’s the simplest way to talk about Carbonite synergies into OpenText.

Carbonite is mainly a U.S. business. We have scaled operations in relevant markets, U.K., Germany, France, Japan, Australia, Singapore, and these are direct markets where we can leverage our presence, our marketing, our operation of multi-thousand employees and customers to help connect Carbonite into the enterprise, so that’s the second synergy. And I think those are the 2 largest ones.

 

 

Paul Treiber - RBC Capital Markets, Research Division - Associate

And with Webroot, obviously, Carbonite is -- has a bigger piece of the endpoint protection market. What -- can you just refresh your thoughts on endpoint protection, how you see that as being, I guess, the synergies or strategic with -- or an integral part of enterprise information management and how you see it evolving going forward?

 

    

 

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Mark J. Barrenechea - Open Text Corporation - Vice Chairman, CEO & CTO

Yes. So I mean we look at all the information that kind of rests on an endpoint. And we think that information needs to be secured and managed, whether it’s in the cloud or on an endpoint. And look, as the cloud -- if there’s no endpoint, there’s no cloud. If there’s no cloud, there’s no endpoint, and so its endpoints and deep servers out in the cloud.

And as I like to say, own your edge. You got to own your edge, and that edge is going to be a mobile device. It’s going to be the Internet of Things. It’s going to be a desktop, a laptop, a cell phone, an industrial IoT. Own your edge, and it’s edge on in the age of cloud. So we think the management of information, whether on the edge or back at corporate is really important for enterprise information management.

So Webroot plus Carbonite plus Guidance is the most robust endpoint protection platform that we can see in the marketplace covering both the endpoint detection, response, digital forensic, security and data protection. And all that together, the term is all of that combined is EPP, endpoint protection. And -- and that’s why we think it’s an important part of EIM.

 

 

Operator

Our next question is coming from Paul Steep of Scotia Capital.

 

 

Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst

Mark, maybe just on that last question. Can you talk about how we should think about maybe the investment behind more aggressively going after the EPP market now that you combine that? You obviously get the feedback from Guidance in just having an EDR product. What that opportunity looks like and whether that’s maybe one of the gating factors relating to the longer-than-normal integration time frame? Or secondly, if there’s another assumption or reason for sort of maybe the slightly longer lead time there.

 

 

Mark J. Barrenechea - Open Text Corporation - Vice Chairman, CEO & CTO

Yes. So I mean, just a little bit about our history, right? We started as a search company, went with content management, went into customer experience management, which is a whole -- which is all new types of information. We then made -- we extended into e-discovery and capture other functional areas. Then we brought in GXS and ANX and Covisint and Liaison where recognized information needs to be exchanged between organizations, but the information still needs to be managed.

Same thing with the endpoint. It is very clear, right, in the age of cloud that the endpoint is a strategic place to have software and capability. And own your edge, whether it’s an industrial IoT all the way through a smart device, a laptop. So it’s a pivotal platform to have software on. We learned a lot when we bought Guidance Software. And as you can -- and you rightfully called it, the market is called EDR, enterprise detection and response. But it’s a larger market, right?

It’s gone into data protection, security protection, threat hunting, threat analysis, and we’ve got a whole conference on this starting tonight, by the way, in Vegas called Enfuse. We think we have the right level of investment with Carbonite. So I think when we look at Guidance plus Webroot plus Carbonite, this is a scaled business and I think the right level of investment to have a winning platform on and to meet all our financial objectives.

We gave ourselves a little more room, to your second question, we typically say 12 months. But we outlined 18 months from today, right? Takes us 90 days to close, then you’re only down to 15 months, right, which is a little longer than 12 months. But the 18 -- by the end of fiscal ‘21 -- this is a very large cloud operation, right? 250 petabytes plus millions of end users, high security environment, cloud operations. And I just want to give us a little more time to perfectly integrate it into our combined cloud operations at scale. It’s not just people. It’s also physical things that we need to integrate. So I’m just giving ourselves a little more time.

 

    

 

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Paul Steep - Scotiabank Global Banking and Markets, Research Division - Analyst

Fair enough. I guess the last one on it. No one’s — since it’s actually a material part of Carbonite’s business, what do you think the opportunity looks like to move on the data backup side towards more of the traditional OpenText base and offer that through the data centers and the network?

 

 

Mark J. Barrenechea - Open Text Corporation - Vice Chairman, CEO & CTO

Well, I think it’s significant. I think the opportunity is significant. Allow me that the #1 use case for Box is data protection. And the opportunity to go to all our enterprise users and say, “You can protect that endpoint with Core, with Carbonite,” is quite significant. So that’s a very exciting use case that we’re going to have front and center.

 

 

Operator

Our next question is coming from Steven Li of Raymond James.

 

 

Steven Li - Raymond James Ltd., Research Division - SVP

Mark, just to clarify, you said accretive in fiscal 2021, but it’s also accretive in 2020, right, even if you get a quarter, just 1 quarter of Carbonite?

 

 

Mark J. Barrenechea - Open Text Corporation - Vice Chairman, CEO & CTO

We haven’t given any specifics on the current fiscal year, fiscal ‘20. We will when we close. We expect to close in 90 days. It’s a little sooner or a little later. The timing is going to matter. So definitely accretive in fiscal ‘21. We’ll get our financial projections out for fiscal ‘20 once we close, right?

Remember, there’s. -- there’ll be earnings accretion. There’ll be no dilution. There’s no TSA. But as we typically do, allow us to close. And once we close, we’ll get our projections out. And given it’s going to close it in the second half of our fiscal year, we want to be precise on the targets we provide.

But be mindful, great cash flow, no dilution, earnings accretion. I mentioned fiscal ‘21 because it’s not subject to the timing of the close, and we can see very clearly the first full year model, if that’s helpful.

 

 

Steven Li - Raymond James Ltd., Research Division - SVP

Okay. Yes. No, that makes sense. And then just Carbonite’s organic growth recently, excluding acquisitions, is that something that attracted you to Carbonite?

 

 

Mark J. Barrenechea - Open Text Corporation - Vice Chairman, CEO & CTO

A lot of things attracted us. And as I said in my prepared remarks, we’re expecting to grow Carbonite low single digit in our model. So this is an area -- we’re coming into the acquisition with a strong model for growth.

 

 

Operator

Our next question is coming from Richard Tse of National Bank.

 

    

 

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Richard Tse - National Bank Financial, Inc., Research Division - MD & Technology Analyst

Mark, I was wondering if you could actually give us a sense of the penetration rate of similar security products into your existing base today.

 

 

Mark J. Barrenechea - Open Text Corporation - Vice Chairman, CEO & CTO

Yes. Richard, thanks for the question. We put security front and center only about 2 years ago when we acquired Guidance. So it’s a low penetration rate for us. It’s still early days, right? Well, part of what we like about Carbonite is their very impressive and superior route to market, their channel. And that’s going to help our base, if you will. So -- and I don’t have a precise percent. Maybe it’s around 10% penetration, but it’s a relatively low penetration and thus, high opportunity set for us.

 

 

Richard Tse - National Bank Financial, Inc., Research Division - MD & Technology Analyst

And I guess related to that question, given that they’ve been focusing on SMB, do you have to do anything with the product set to actually scale and then to your enterprise base?

 

 

Mark J. Barrenechea - Open Text Corporation - Vice Chairman, CEO & CTO

The -- in our estimation, the Core service scales into the enterprise. They have 7 million end users and 250 petabytes of data in their service. That’s upscale. I’m sure there are some capabilities to make it easier to manage 10,000 users in bulk, if you will. So we have some work to do, but it’s more around polishing to bring to the enterprise versus sort of agility, scalability, reliability.

 

 

Operator

Ladies and gentlemen, this brings us to the end of the question-and-answer session. I will now turn the call back over to Mr. Barrenechea for closing comments.

 

 

Mark J. Barrenechea - Open Text Corporation - Vice Chairman, CEO & CTO

All right. Well, I know we’ve put a lot of information out this morning in a short amount of time. I thank everyone for joining this call on relatively short notice. We got a big week this week at Enfuse, right? That’s our security conference and timing couldn’t be better on today’s announcement. I hope you join us in Vegas for Enfuse. We have Director Clapper giving our final keynote on Thursday to talk about the importance of cybersecurity. And I thank you for joining today’s call. So thank you.

 

 

Operator

This concludes today’s conference. You may disconnect your lines at this time. Thank you for participating, and have a pleasant day.

 

 

 

 

    

 

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EX-99.2

Slide 1

OpenText Signs Definitive Agreement to Acquire Carbonite, Inc. November 11, 2019 Exhibit 99.2


Slide 2

Cautionary Statement Regarding Forward-Looking Statements Certain statements in this presentation, including statements regarding OpenText’s plans, objectives, expectations and intentions relating to the acquisition, the acquisition’s expected contribution to OpenText’s results, financing and closing of the acquisition, as well as the expected timing and benefits of the acquisition, impact on future financial performance including in respect of annual recurring revenues, cloud revenues, cloud margins, adjusted EBITDA, cash flows, earnings and dividends, may contain words considered forward-looking statements or information under applicable securities laws. These statements are based on OpenText's current expectations, estimates, forecasts and projections about the transaction, including the expected closing, timing and benefits thereof, and the operating environment, economies and markets in which the company operates. These statements are subject to important assumptions, risks and uncertainties that are difficult to predict, and the actual outcome may be materially different. OpenText’s assumptions, although considered reasonable by the company at the date of this press release, may prove to be inaccurate and consequently its actual results could differ materially from the expectations set out herein. For additional information with respect to risks and other factors which could occur, see OpenText’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other securities filings with the SEC and other securities regulators. Unless otherwise required by applicable securities laws, OpenText disclaims any intention or obligations to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


Slide 3

Call Participants Mark J. Barrenechea OpenText, CEO and CTO Madhu Ranganathan OpenText, EVP and CFO


Slide 4

Continued Execution of OpenText’s Strategic Vision Carbonite is a continuation of our Total Growth Strategy, both through acquisitions and organic growth We are leading the market as a Cloud Consolidator – Carbonite represents OpenText’s 9th cloud acquisition (EasyLink, GXS, ANX, Covisint, Recommind, Hightail, Catalyst, Liaison, and now Carbonite) Market leader in end-point protection. Carbonite was founded in 2005, the first vendor to combine data protection and end-point security, strengthens and broadens OpenText’s information security offerings in digital forensics, end-point detection and response Carbonite brings a leading SMB(1) and prosumer channel with 14,000 MSPs(1), 300,000 SMB customers, 50 million end-point points and 7 million prosumers Current Annual Recurring Revenues (ARR) of 90%, expect significant expansion of cloud revenues, cloud margins, Adj. EBITDA and cash flows in FY’21 High teens ROIC (Return on Invested Capital) Complements our Enterprise G10K(2) customer base The OpenText Business System to benefit Carbonite in operational execution, growth, margin and cash flow expansion SMB: Small, Medium-sized Businesses, MSP: Managed Service Provider G10K: The Global 10K represents the 10,000 largest companies and organizations in the world.


Slide 5

Purchase price subject to certain adjustments; all dollar amounts in this presentation are in US dollars unless otherwise indicated. Announcement On November 11, 2019, OpenText signed a definitive agreement to acquire all of the outstanding shares of Carbonite for $23.00 per share Carbonite has over 300,000 SMB customers, 14,000 MSPs, 7 million prosumers, and 1,500+ employees Transaction and Purchase Price Purchase price of approx. $1.42 billion, inclusive of Carbonite’s cash and debt(1) Total purchase price is approximately 2.8x TTM (Trailing Twelve Months) Carbonite GAAP revenues (as of September 30, 2019), inclusive of annualized full year reported Webroot GAAP revenues, a significant acquisition which closed in March 2019 Funded with OpenText’s existing cash on hand and revolver Projected Financial Impact Current Carbonite Annual Recurring Revenues (ARR) of 90% Expect significant expansion of cloud revenues, A-EBITDA margin, cloud margin, and cash flows in FY’21 Accretive, and targeting to be on the OpenText operating model by end of Fiscal 2021 Estimated OpenText net leverage ratio at closing of approximately 2.5x, with a target to return to less than 2x net leverage during the 4-6 quarters post close of transaction Financial projections and target models to be provided upon closing Expected Closing Expect to close within 90 days of this announcement Subject to regulatory approvals and customary closing conditions + Transaction Overview


Slide 6

OpenText: A Durable Business Driven by the OpenText Business System Renewal Rates: Cloud: mid 90%’s Off Cloud CS: low 90%’s Strong Annual Operating Cash Flows A-EBITDA Margin(1) +530 bps since FY’14 38.4% 33.1% 104% Please see reconciliation of GAAP to Non-GAAP measures in our historical filings. Refer to note 1 of our Fiscal 2019 10-K for details on the impact of recently adopted accounting standards on prior period results. Annual Recurring Revenue (ARR) (US$ M) A-EBITDA & Margin(1),(2) (US$ M) Operating Cash Flows(2) (US$ M)


Slide 7

1991 Founded out of University of Waterloo 1996 OpenText IPO on NASDAQ Joined TSX60 2014 2015 2016 2018 2019 Enterprise Content Division Content Management Business Networks and Other HP CEM & CCM Software(1) Note: Timeline based on calendar year, including select transactions. $4.8bn capital deployed since FY’14 18.7% ROIC in FY ’19(2) 2017 CEM – Customer Experience and Content Management. CCM – Customer Communications Management. See page 20 on OpenText’s Investor Presentation dated August 1, 2019. Building on OpenText’s History of Innovation Approx. $1.42B purchase price 2012


Slide 8

TTM metrics as of September 30, 2019, based on Carbonite’s historical filings. Please refer to Carbonite’s historical financial filings for additional information on their calculation of A-EBITDA (a Non-GAAP measure) VAR: Value Added Resellers, RRM: Remote Monitoring and Management, OEM: Original Equipment Manufacturer petabytes A vision to protect 1 million small and medium businesses by 2023 by providing the first fully integrated cyber resiliency solution via a worldwide network of MSPs and channel partners. Carbonite at a Glance: A Leader in Cyber Resiliency Compelling vision couples Data Protection and Security creates platform for Total Protection Proprietary Cloud native architecture; secure encryption Strong prosumer brands Positioned to leverage key trends: Back-up moving to the cloud Increased data regulation Ever increasing data sprawl Growing attacks from ransomware $405m TTM Revenue (1) (as of September 30, 2019) 7M Prosumers 50M end-points protected 250 petabytes Data under management 90% Recurring revenue 29% A-EBITDA Margin (1) 1,500 Employees 300k SMB Businesses >200 Patents issued/pending 14,000 MSP’s, Online, VARs, Retail, RMM, OEM


Slide 9

Market Leadership Across End-point Security and Protection End-point Protection (EPP) 10 years running 10 years running Data Protection End-point Detection and Response (EDR) Software Market Forecast: $8.5B 2018-2023: 5.8% CAGR Software Market Forecast: $3.1B 2018-2023: 25% CAGR Software Market Forecast: $7.6B 2018-2023: 9.6% CAGR Awards and Recognition


Slide 10

Carbonite Strengthens Our Leadership in Cloud, Security, SMB Total Addressable Market data is expected to be updated after the closing of the Carbonite acquisition Market Area 5 Key Vectors(1) Customer Value Approach OpenText Key Product Families ECM, Business Collaboration, File Sync and Share, Experience Supporting new ways to work Content Suite, Documentum, Capture, Exstreme, Extended ECM Business Network, Supply Chain, IoT, ODM Digital Supply Chains, Application Integration GXS, Liaison, EasyLink, Covisint AI/ML/Advanced Technology Insight-driven decision making Magellan Security Information Security, Governance, Compliance, Privacy, End-points Carbonite, Guidance, EnCase Vertical Applications Building next generation content-based applications (Contracts, Cases, Quality, Invoicing, Supply Chain, LegalTech) Active Applications, Core Applications, Quality Center


Slide 11

Complete The Need SMB Prosumer Enterprise Carbonite Solutions OpenText Solutions Expanding EIM Into Three Markets: Enterprise, SMB, Prosumer


Slide 12

Carbonite Meets our Key Acquisition Criteria Leadership Position Recognized leader in key market segments. Value for OpenText’s Customers EIM + Total end-point protection Mission Critical Enterprise, SMB and Prosumers Larger Customer Base >300,000 SMBs > 14,000 MSPs Long Operating History & IP Established over 10 years ago, running in the cloud 200 issued/pending patents Financially Compelling Targeting to be on the OpenText operating model by end of FY’21 High Teens ROIC Solid Track Record of High-Teens ROIC and Operating Cash Flows


Slide 13

Continued Execution of OpenText’s Strategic Vision Carbonite is a continuation of our Total Growth Strategy, both through acquisitions and organic growth We are leading the market as a Cloud Consolidator – Carbonite represents OpenText’s 9th cloud acquisition (EasyLink, GXS, ANX, Covisint, Recommind, Hightail, Catalyst, Liaison, and now Carbonite) Market leader in end-point protection. Carbonite was founded in 2005, the first vendor to combine data protection and end-point security, strengthens and broadens OpenText’s information security offerings in digital forensics, end-point detection and response Carbonite brings a leading SMB(1) and prosumer channel with 14,000 MSPs(1), 300,000 SMB customers, 50 million end-point points and 7 million prosumers Current Annual Recurring Revenues (ARR) of 90%, expect significant expansion of cloud revenues, cloud margins, Adj. EBITDA and cash flows in FY’21 High teens ROIC (Return on Invested Capital) Complements our Enterprise G10K(2) customer base The OpenText Business System to benefit Carbonite in operational execution, growth, margin and cash flow expansion SMB: Small, Medium-sized Businesses, MSP: Managed Service Provider G10K: The Global 10K represents the 10,000 largest companies and organizations in the world.


Slide 14

Appendix


Slide 15

Ransomware – A Pervasive Threat Movement to the cloud has eroded network borders…data is the target Malicious actors succeed by attacking the most vulnerable point-user at the end-point Large organizations have teams and resources to prepare for and mitigate cyber threats – SMBs do not If an end-point becomes compromised (due to user error, etc.) security measures alone are ineffectual at stopping the attack User must pay the ransom or leverage data backups State of The Market Only a coordinated approach which integrates end-point security with data protection can effectively mitigate the ransomware threat Carbonite’s Unified Data Protection Platform – The only reliable means of protecting and recovering data – end-point security reduces the chances of a successful attack and data protection enables data recovery in the event of a successful ransomware attack Decreases cost and complexity for customers – SMBs, MSPs, and prosumers can secure and recover their data from a single unified console with lower total cost of ownership Security Awareness Training offering – Helps reduce user errors that result in a ransomware attack Unified Data Protection Platform 13,000 Carbonite customers have been targets of ransomware attacks. Carbonite has delivered 100% successful remediation


Slide 16

Carbonite Security Product Offerings End-point Protection Prosumer EPP (WSAC) SMB EPP (WSAB) Server Protection Mobile Protection Network Protection DNS Protection WiFi Security User Protection Security Awareness Training Unity API BrightCloud ® Threat Intelligence Web Classification Reputation IP and File Reputation Streaming Malware Detection Real-Time Anti-Phishing Webroot Platform Multi-tenant solution with centralized management in the cloud, enhancing ease of use Single, fully integrated platform, providing context to threats and enhancing efficacy Lightweight agent delivers rapid scanning and minimal impact on system performance


Slide 17

Carbonite Data Protection Product Offerings End-point Backup Secures data located within devices File level backup Robust encryption & deduplication Data loss mitigation Flexible deployment Comprehensive data protection platform Modern architecture with seamless, intuitive user interface Highly efficient, scalable and low-cost cloud infrastructure Cloud Apps Comprehensive protection for all Granular Restore Visibility and Control over protected content Server Backup Rapid recover of single data file or entire server Supports physical and virtual machines Protects against ransomware, accidental deletions, system failures and natural disasters DRaaS Based on proprietary replication technology Customers can fail-over near instantaneously to the cloud Eliminates need for secondary data center for disaster recovery Migration Powered by proprietary replication technology Orchestrates migrations regardless of source or target Email Archiving 2014 acquisitions of MailStore Enables both SMBs and prosumers to archive emails Helps customers meet data retention regulatory requirements Cloud Platform


Slide 18

Additional Information The tender offer described in this communication has not yet commenced. This communication is provided for informational purposes only and does not constitute an offer to purchase or the solicitation of an offer to sell any securities. At the time the tender offer is commenced, OpenText and a wholly owned subsidiary intend to file with the Securities and Exchange Commission (the “SEC”) a Tender Offer Statement on Schedule TO containing an offer to purchase, a form of letter of transmittal and other documents relating to the tender offer, and Carbonite intends to file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-9 with respect to the tender offer. OpenText and Carbonite intend to mail these documents to the Carbonite stockholders. Investors and security holders are urged to read those documents and other relevant documents filed or to be filed with the SEC carefully when they become available as they will contain important information about OpenText, Carbonite, the tender offer and related matters. Those documents as well as OpenText’s and Carbonite’s other public filings with the SEC may be obtained without charge at the SEC’s website at www.sec.gov. OpenText’s public filings with the SEC may be obtained at OpenText’s website at http://investors.opentext.com/ and Carbonite’s public filings with the SEC may be obtained at Carbonite’s website at https://investor.carbonite.com/. The offer to purchase and related materials may also be obtained (when available) for free by contacting the information agent for the tender offer.


Slide 19

EX-99.3

Exhibit 99.3

Mark Barrenechea—Message to Carbonite

Subject:   OpenText and Carbonite

 

LOGO

Dear Future Colleagues,

I am incredibly excited that OpenText has entered into a definitive agreement to acquire Carbonite, and I look forward to welcoming you to the OpenText family in the near future.

Carbonite is an impressive company, and we look forward to working together, building upon your successes, and learning from you. During this process, I have been able to get to know your management team, and have come away impressed by your values and culture, as well as the quality of the team.

You have built market-leading data protection and endpoint security products which will strongly complement OpenText’s leadership in Enterprise Information Management, particularly our security offerings in data loss prevention, digital forensics, endpoint detection and response.

In addition, the impressive channels to SMB and prosumer markets that you have developed will provide new opportunities for OpenText and complement our strong enterprise customer base in the Global 10K. Together, we will be able to bring Enterprise Information Management to the enterprise, SMB and prosumer markets.

I look forward to coming to the Carbonite offices in Boston on November 19th to meet the team, host an All-Hands meeting with Steve Munford and answer any questions you may have.

This is a very big opportunity for both OpenText and Carbonite, and I look forward to welcoming you to OpenText soon.

mark++

EX-99.4

Exhibit 99.4

The following was posted by OpenText on Twitter at https://twitter.com/OpenText/status/1193879958558511109 on November 11, 2019.

 

LOGO


The following was posted by OpenText on Twitter at https://twitter.com/pattynagleOT/status/1193924432500285440 on November 11, 2019.

 

LOGO


The following was posted by OpenText on Twitter at https://twitter.com/OpenText/status/1193959646714880000 on November 11, 2019.

 

LOGO

Open Text to Buy Cybersecurity Company Carbonite

Canadian company’s offer of $23 a share is a 25% premium to Carbonite’s closing price on Friday

By Dave Sebastian

Updated Nov. 11, 2019 1:47 pm ET

Open Text Corp. is buying cybersecurity company Carbonite Inc. for $884 million.

The Canadian company’s offer of $23 a share is a 25% premium to Carbonite’s closing price on Friday of $18.40.

The deal price also represents a 78% premium to where Carbonite shares were trading in early September, when Bloomberg reported the company was exploring a sale after receiving takeover interest.

Shares of Carbonite leaped 25% Monday.

Carbonite’s board was in contact with a number of strategic and financial suitors as part of its process, Steve Munford, Carbonite’s executive chairman, said in prepared remarks. Mr. Munford also serves as interim chief executive and president.

Open Text, which offers enterprise information-management software, said the deal would expand its cloud revenue and adjusted earnings before interest, taxes, depreciation and amortization in fiscal year 2021. Shares of Open Text rose 2.4% on Monday.

Open Text Chief Executive Mark Barrenechea said the acquisition would provide access to Carbonite’s enterprise users, including small and midsize businesses. It would complement Open Text’s offerings of endpoint security, or a way of securing end-user devices such as mobile phones and laptops, he said.

“We believe the end markets are quite strategic and have strong industrial logic to them, which is endpoint protection and endpoint data security,” Mr. Barrenechea said in an interview. “In the age of cloud and nomadic workforces, you need to own the edge.”

The companies expect the transaction to close within 90 days.

Also on Monday, Carbonite reported third-quarter results. For the quarter ended Sept. 30, the Boston-based company posted a net loss of $13.96 million, or 40 cents a share, compared with a profit of $586,000, or 2 cents a share, in the same period last year.

Revenue rose 62% to $125.6 million from a year earlier. Operating expenses rose 80% to $92.5 million.

https://www.wsj.com/articles/open-text-to-buy-cybersecurity-company-carbonite-11573485958


The following was posted by Mark J. Barrenechea, Vice Chair, Chief Executive Officer and Chief Technology Officer of OpenText, and by OpenText, on Twitter at https://twitter.com/markbarrenechea/status/1193953599014883328 on November 11, 2019.

 

LOGO

OpenText Agrees to Buy Carbonite for $1.42 Billion

By Eric J. Savitz

Nov. 11, 2019 10:50 am ET

Carbonite is being acquired by OpenText for $1.42 billion. Photograph by Jordan Harrison Carbonite (ticker: CARB), a Boston-based cybersecurity company that has been shopping itself around for months now, said this morning it has agreed to be acquired by OpenText (OTEX) for $1.42 billion, or $23 a share. Carbonite notes that the price is a 78% premium to its shares on September 5, ahead of a media report speculating on a possible sale.

Carbonite CEO Steve Mumford said in a statement that the company “conducted a thorough and comprehensive review process” after receiving “expressions of interest from multiple parties.”

He added that “the Board strongly believes that a transaction with OpenText delivers compelling, immediate and substantial cash value to shareholders.”

OpenText sells enterprise information management software.

“Cloud platforms and secured, smart endpoints are essential Information Management technologies as businesses transform into Industry 4.0,” OpenText CEO Mark J. Barrenechea said in a statement. “This acquisition will further strengthen OpenText as a leader in cloud platforms, complete end-point security and protection.”

OpenText noted that the purchase price is about 2.8 times Carbonite’s trailing 12 months GAAP revenue. The company said it expects “significant expansion of cloud revenues, cloud margins, adjusted Ebitda and cash flows in fiscal 2021.” The companies expect the deal to close within 90 days.

Last week, there were reports that multiple private-equity firms had shown interest in buying Carbonite, including KKR, Evergreen Coast Capital and Vector Capital.

Carbonite also reported third-quarter financial results on Monday. For the quarter, the company posted revenue of $125.6 million, up 62% year over year. Non-GAAP revenue was $135 million, up 71%, and ahead of the Street consensus at $131.6 million. The company posted adjusted earnings of 61 cents a share, ahead of the Street consensus at 47 cents. On a GAAP basis, the company lost $140 million, or 40 cents a share. Adjusted earnings before interest, tax, depreciation, and amortization, or Ebitda, was $40.2 million, versus $23.0 million in the year-earlier quarter.

Carbonite stock was up 24.4% to $22.89, just slightly below the bid price, in recent trading. OpenText shares were up 3.3%, to $42.93.

https://www.barrons.com/articles/opentext-agrees-to-buy-carbonite-51573487123


The following was posted by OpenText on Twitter at https://twitter.com/BostInno/status/1194684857043111936 on November 13, 2019.

 

LOGO

Canadian Software Company OpenText Acquires Carbonite in $1.42B Deal

By Gintautas Dumcius -

November 11, 2019

This article first appeared in our sister publication the Boston Business Journal.

Boston-based tech company Carbonite Inc. has agreed to be acquired by Canadian software company OpenText in a $1.42 billion deal.

Carbonite, which provides subscription data protection, backup and security to businesses and consumers, is headquartered in Boston and has offices in Europe and Canada. The company employs 959 people, with 289 of those employees in Massachusetts.

“This acquisition will further strengthen OpenText as a leader in cloud platforms, complete end-point security and protection, and will open a new route to connect with customers, through Carbonite’s marquee SMB/prosumer channel and products,” said Mark J. Barrenechea, CEO and CTO of Waterloo, Ontario-based OpenText, in a statement. “We are very excited about the opportunities that Carbonite will bring, and I look forward to welcoming our new customers, partners and employees to OpenText.”

Carbonite’s acquisition comes nearly nine months after the company made its own acquisition: Carbonite in March closed on a $618.5 million acquisition of Colorado company Webroot, first known for selling desktop anti-spyware software and then later for selling security products to businesses.

Carbonite’s total revenue was $328 million for the nine months ending Sept. 30, up from $219.4 million in the same time period a year ago, an increase of 50 percent.

OpenText has agreed to pay $23 per share in cash—a 25 percent premium to Carbonite’s closing price on Friday—totaling $884 million, according to the Wall Street Journal. OpenText will also assume Carbonite’s debt.

OpenText said in a release the company plans to start the tender offer for all of the shares of Carbonite common stock within tender offer, through a wholly-owned subsidiary. The transaction is expected to close within 90 days.

Hilary Burns contributed to this report.

https://www.americaninno.com/boston/bostinno-bytes/canadian-software-company-opentext-acquires-carbonite-in-1-42b-deal/

EX-99.5

Exhibit 99.5

The following was posted by OpenText on LinkedIn at https://www.linkedin.com/company/opentext/ on November 11, 2019.

 

LOGO


The following was posted by Savinay Berry, who is the Senior Vice President, Cloud Service Delivery at OpenText, on LinkedIn at https://www.linkedin.com/posts/savinayberry_opentext-acquires-data-backup-and-security-activity-6599900519504855041-0V-2 on November 12, 2019.

 

LOGO

OpenText acquires data backup and security platform Carbonite for $1.42 billion

PAUL SAWERS

NOVEMBER 11, 2019 5:42 AM

Enterprise information management (EIM) company OpenText is acquiring cloud data backup and protection service Carbonite in a deal worth $1.42 billion.

Carbonite, which offers a number of data backup and protection services for consumers and businesses, had become the subject of significant takeover rumors over the past few months after its revenue dropped. CEO Mohamad Ali stepped down in July and was replaced on an interim basis by board chair Steve Munford.

Boston-based Carbonite had raised nearly $200 million from big-name investors ahead of its 2011 IPO, and its shares soared well above its $10 IPO price to hit an all-time high of more than $40 last year, before falling to around $12 in August. Private equity firms, including Evergreen Coast Capital, KKR, and Vector Capital, were among the companies rumored to be circling Carbonite, but OpenText has now swooped in with an offer of $23 per share — a 78% premium on Carbonite’s September 5 closing price, before the media first reported that a sale could be in the cards.

“Following expressions of interest from multiple parties, the Carbonite board conducted a thorough and comprehensive process, which included contact with a number of strategic and financial parties, to identify the best way to maximize shareholder value,” Munford said in a press release. “The board strongly believes that a transaction with OpenText delivers compelling, immediate, and substantial cash value to shareholders.”

Carbonite’s announcement was timed to coincide with its Q3 2019 financials, which revealed a net loss of $14 million, compared to a small net income of $600,000 during the same period last year.

Cloud giant

Founded in 1991, OpenText is among Canada’s biggest software companies, specializing in helping enterprises manage all their content and unstructured data in the cloud or on-premises. The company has made a number of other notable acquisitions in the recent past, including Dell EMC’s enterprise content division, which it bought for $1.6 billion in 2017, and file-sharing service Hightail, formerly YouSendIt, which it bought for an undisclosed amount last year.

Carbonite itself made one particularly notable acquisition earlier this year, when it bolstered its cybersecurity credentials with the acquisition of Webroot for $618 million. This deal may have enhanced Carbonite’s prospects for future suitors, given that it promised to bring data protection and cybersecurity into a single platform.

OpenText hasn’t offered any specifics around how it will leverage Carbonite’s technology post-acquisition. But the latter’s focus on backing up and protecting data stored in the cloud makes it easy to imagine the two platforms complementing each other as a growing number of businesses migrate to the cloud.

“Cloud platforms and secured, smart end-points are essential Information Management technologies as businesses transform into Industry 4.0,” added OpenText CEO and CTO Mark J. Barrenechea in a separate press release. “This acquisition will further strengthen OpenText as a leader in cloud platforms, complete end-point security, and protection and will open a new route to connect with customers.”

The deal has not yet been finalized, as it’s still subject to shareholder approval and the usual regulatory processes.

https://venturebeat.com/2019/11/11/opentext-acquires-data-backup-and-security-platform-carbonite-for-1-42-billion/


The following was liked by Muhi Majzoub, who is the Executive Vice President & Chief Product Officer at OpenText, on LinkedIn at https://www.linkedin.com/posts/activity-6599851315684274177-JIIR on November 12, 2019.

 

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November 11, 2019

OpenText to Buy Carbonite for $1.42B

The deal would be OpenText’s ninth acquisition in the cloud space.

William Sprouse

Enterprise information company OpenText has agreed to buy Carbonite for $1.42 billion, or $23 per share, inclusive of Carbonite’s cash and debt, the companies said.

The agreed price represents a 78% premium to Carbonite’s closing price on September 5, before media reports speculated on a possible deal.

“This acquisition will further strengthen OpenText as a leader in cloud platforms, complete end-point security and protection, and will open a new route to connect with customers, through Carbonite’s marquee SMB/prosumer channel and products,” OpenText chief executive officer Mark Barrenechea said in a statement.

Carbonite reported a net loss of $14 million, or 40 cents a share, on revenue of $125.6 million in the third quarter. The total price represents about 2.8 times Carbonite’s trailing twelve months GAAP revenues as of September 30, 2019. The deal will be funded with OpenText’s existing cash on hand and revolver. The company said it had about $1 billion in cash on hand at the end of the first quarter.

OpenText has been growing through acquisitions. In recent years, the company has bought EasyLink, GXS, ANX, Covisint, Recommind, Hightail, Catalyst, and Liaison.

In February, Carbonite announced it was buying Webroot for $618.5 million in cash.

“We entered Fiscal 2020 with a solid balance sheet and we are off to a strong start with the announced acquisition of Carbonite as part of our total growth strategy,” OpenText chief financial officer Madhu Ranganathan said in a statement. “Once integrated, we expect to increase our annual recurring revenues, deliver strong cloud growth, and expand cloud margins and adjusted EBITDA.”

The companies said they expect the transaction to close within 90 days.

Carbonite shares were up nearly 25% in midday trading Monday on the news. Shares of OpenText were up more than 2%.

https://www.cfo.com/ma/2019/11/opentext-to-buy-carbonite-for-1-42b/


The following was posted by Brian Sweeney, who is the Chief Human Resources Officer at OpenText, on LinkedIn at https://www.linkedin.com/posts/brian-sweeney-03522415b_opentext-snaps-up-cloud-security-firm-carbonite-activity-6600170061175025664-eIAH on November 13, 2019.

 

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OpenText snaps up cloud security firm Carbonite in $1.42 billion deal

The deal is a premium of 25 per cent to Carbonite’s close on Friday

OpenText, a Canadian business information management software company, is buying cloud security firm Carbonite Inc.

James McLeod

November 11, 2019 10:21 AM EST Last Updated November 11, 20196:45 PM EST

A US$1.42 billion cybersecurity acquisition by OpenText Inc. Monday marks a down-market strategic shift for the Waterloo, Ont.-based enterprise information management company.

Carbonite Inc. is a Boston company with US$405 million in revenue, selling endpoint security software and cloud data protection services. But notably, about 90 per cent of Carbonite’s customer base is individual professionals — “prosumers” — and small and medium-sized businesses (SMB). By contrast, OpenText has historically focused on selling to the so-called “Global 10,000” — the largest enterprise customers in the world.

Buying Carbonite Inc. gives OpenText seven million individual professionals, and 300,000 SMBs to up-sell.

“We’re declaring SMB and prosumer a strategic market for enterprise information management,” OpenText CEO Mark Barrenechea said in an interview.

Barrenechea said he expects it’ll take about 18 months to integrate Carbonite into OpenText, but he emphasized that there’s no rush.

“Let me just note a few things about Carbonite: It’s profitable. It’s operating at a higher margin,” Barrenechea said.

The company has a long history of growing through acquisition; OpenText spent nearly US$3 billion between 2013 and the beginning of 2017, including the US$1.62 billion acquisition of Dell EMC, the company’s enterprise content management division.

Analysts were largely positive about the Carbonite acquisition and OpenText stock was up about 2.4 per cent to close at $56.27 Monday in Toronto.

In a note to investors, National Bank analyst Richard Tse noted that the opportunity to pursue smaller customers could be interesting to watch.

“With an added SMB partner channel, it opens up the potential for OpenText to build a meaningful SMB revenue stream. This is particularly relevant as OpenText has opened up its product stack into those potential SMB customers in recent years as it has made those products available in the OpenText Cloud.

Tse also said it is a way for OpenText to bolster its cybersecurity chops.

“From a strategic standpoint, we believe the transaction is compelling as Carbonite complements OpenText’s current security software portfolio,” Tse wrote. “Even more interesting is the ability to upsell into OpenText’s extensive enterprise customer base where the estimated penetration rate with such security products is around 10 per cent.”

Michelle Tran, a security and risk-management specialist at Toronto-based research firm Info-Tech Research Group, said that cybersecurity acquisitions like this are becoming commonplace in the tech sector, as large service providers try to emphasize that they’re serious about security.

“With the increase in cybercrime, growth in data, tighter regulations around data protection and digital transformation such as cloud and Internet of Things adoption, cybersecurity is at the forefront of everyone’s agenda. Not only do organizations want to incorporate their purchased technology from vendors to enable business process, but they also want the process to be handled securely and with integrity,” Tran said.

“When technology companies value cybersecurity and implement that into their product lines, they get noticed and, in a way, gain credibility because it’s one less thing IT needs to worry about.”

OpenText is forecasting “low single-digit organic growth” once Carbonite is integraged, but by adding customers through acquisition the company is still pursing a “total growth” strategy that includes growing through acquisition.

As a result of the purchase, the company is taking on more debt, but expects its net leverage ratio to return to normal within 18 months.

In his investor note, Li suggested that the company is in a strong position.

“For those who may question the ability to de-lever, we’d point out that OpenText has one of the most disciplined de-levering track records among the acquisition growth names in our coverage,” Li wrote. “For some perspective, investors will recall OpenText acquired Documentum for US$1.62 billion in September 2016, taking its leverage ratio to ~3.5x at that time; today, it stands at 1.5x with about $800 million in free cash flow generation as of fiscal 2019 (June).”

https://business.financialpost.com/technology/carbonite-to-be-bought-by-canadas-opentext-in-1-42-bln-deal