Corel buys SoftQuad for US$36 million

Corel Corp.’s president and CEO said the deal to acquire SoftQuad Software Ltd. is another step in its shift in focus and growth strategy

Derek Burney said the Toronto-based company is a perfect fit, and combined with another recent acquisition it can tackle the growing cross-media publishing market.

“You create your content once and then have it deployed on a variety of media such as paper, Web, cell phone, you name it. That’s becoming a huge market opportunity. Adobe is trying to play there, Quark is trying to play there, but they’re all missing some key elements,” said Burney.

The Corel/SoftQuad stock-for-stock deal is valued at about US$36 million. Each common share of SoftQuad will be exchanged for 0.4152 of a Corel common share. This marks the second acquisition in less than a month for the Ottawa-based software maker. In another stock-for-stock deal in mid-July, Corel bought Dallas-based Micrografx Inc. for US$32 million.

SoftQuad makes extensible markup language (XML) software tools and Burney said he sees the technology behind its flagship product, XMetal, being incorporated in current Corel software like WordPerfect.

“It’s a better strategy in the sense that it’s something that’s incorporated into all the other applications so it doesn’t represent a change in direction, but more a selection of path that is open ended,” Burney said hinting at Corel’s previous attempt to enter the Linux market with its own distribution of the open source OS.

“The good news is that it’s already at a point where it’s useable unlike other technologies that adopted a certain momentum and then ultimately couldn’t live up to the hype.”

SoftQuad president and CEO Roberto Drassinower agreed the market is right for XML-related products. “We have seen it go from essentially only visionaries and a select few customers adopting it to actually having enterprises such as Cisco and Microsoft make substantial investments in that technology,” Drassinower said.

While the acquisitions come on the tail of two profitable quarters, Corel has endured a number of financial problems in the past two years. It’s stock had dropped to $1.25 in December 2000, three months after Microsoft Corp. bought US$135 million worth of preferred stock.

IDC Canada analyst Kevin Restivo said he doesn’t believe Corel’s reach is exceeding its grasp, describing the acquisitions as small.

“It’s a step in the right direction for Corel and it’s complementary to their stated goals in that they’re hoping to leverage the Java and XML capabilities that SoftQuad has to further complement their graphics strategy,” Restivo said.

“Their acquisition strategy is being enacted at a good time. The market is obviously depressing the valuations of many companies. It’s a strategy that would have been much more difficult to execute 12 to 18 months ago.”

Burney also dismissed the notion it might be biting off more than it could chew.

“It’s one thing to try and jump into space and create something, but in this case the market is there and waiting, we actually have the people with the expertise,” said Burney. “We’ve plenty of cash in the bank, we’ve got a worldwide customer base, lots of technology, lots of enthusiastic employees, so there’s really nothing missing.”

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