Corel spends $32 million for graphics software firm

Corel Corp. on Monday announced it had entered into an agreement to acquire enterprise process and graphics-software maker Micrografx Inc. a move Corel’s president said signals a return to growth for his Ottawa-based company.

“This announcement today is critical because it says we’re through the restructuring phase and we’re growing the business,” Derek Burney said. “This is the turning point.”

Burney added the acquisition, still subject to approval from regulators and Micrografx shareholders, is consistent with the long-term strategy Corel announced in January.

The three-part strategy involves increasing Corel’s presence in the graphics market and upgrading its business applications user base; developing Web-based functionality in Corel product lines; and capitalizing on growing wireless and web-services markets.

Burney said the acquisition of Dallas-based Micrografx will be a step mainly towards the first two parts of the strategy, though he suggested it could also contribute to third strategy area. For starters, acquiring Mircrografx will help Corel expand its creative products portfolio as the former currently offers technical illustration, business diagramming and digital image procession software through its Graphics Software Division.

Burney said the flow-charting capabilities of Micrografx’s Flowcharter could be incorporated into CorelDraw.

“Any time a customer wants to be creative, we want to make sure they use a Corel product,” Burney said.

The other part of Micrografx’s business is composed of Enterprise Process Management (EPM) solutions, including Six Sigma and supply chain management applications. Corel currently has no involvement in EPM, though Burney referred to it as a lucrative market.

“What this allows Corel to do is position themselves as a front-end supply-chain player,” added Kevin Restivo, an analyst with IDC Canada. “(The announcement) signals a shift from the consumer market to the commercial market.”

Burney said combining the two companies’ technologies will also help Corel achieve the second part of its strategy — developing a more Web-friendly product line. For example, collaboration will enable compression of files to make Web publishing of photo catalogues more feasible, Burney said.

“It turns out Micrografx has a lot of the technology to fix these problems,” Burney said.

Finally, Burney said some future Corel applications will be offered as Web services through Microsoft’s .Net framework, meaning Micrografx technology will probably play a role in Corel’s drive towards the third part of its strategy.

Corel’s acquisition of Micrografx will be a US$32 million stock-for-stock transaction, structured to give Micrografx shareholders about US$2 per share.

“They were undervalued because they were sitting on a boatload of technology,” Burney said of Micrografx. “There are a lot of companies that are in financial difficulty today because of the market.”

Corel, which recently posted a profit for the second consecutive quarter, appears to have survived its own doldrums. It has shed the Linux focus that sent Corel’s stock on a roller-coaster between the fall of 1999 and spring of 2000 (though it still makes products for Linux users), and has directed its attention towards graphics and business productivity applications.

Burney said the Corel is positioning itself to have be a provider of distinct products for the consumer, hobbyist and professional markets.

“We want to have offerings in each offerings for each of those (markets) rather than a shotgun approach, (such as) ‘Corel Draw works for everybody,'” Burney said.

IDC’s Restivo said he expects to see more acquisition announcements from Corel in the future, but suggested the company’s faces a challenge in trying to keep costs under control and grow revenue at the same time.

“All the heavy lifting is happening now,” he said.

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