Jefferies & Co. views Kofax Plc acquiring Atalasoft as a classic strategic bolt-on deal. The brokerage retained its buy rating on shares of Kofax with a price target of 598 pence.

Kofax this morning said it agreed to acquire Atalasoft for a maximum consideration of $9.7 million payable in cash on completion ($4.7 million), one year on ($0.8 million) and as an earn-out over the next 2.5 years. The acquisition does not include Atalasoft’s Vizit business, which the company recently spun off into a separate entity.

We view this as a classic strategic bolt-on, adding important functionality allowing Kofax to provide functionality for the capture of data from on-line sources. The deal is being struck at a relatively low price point, enhancing earnings in fiscal 2012 and leaving Kofax with headroom for further acquisitions, said Graeme Clark, an analyst at Jefferies.

Clark said the acquisition is exactly in line with management's strategy of completing bolt-on acquisitions with the deal being funded by Kofax's current cash resources, leaving significant headroom for other similar deals.

Clark said Atalasoft's leading DotImage techology enables Kofax to capture data from on-line sources such as portals and web-browsers, an increasingly important capability as more data is being created in this way.

Clark said Kofax's ability to capture this data as part of its Capture and Transformation Modules is an important functionality when combined with Kofax's market leading position in paper capture, which should help customers to improve processing times, reduce costs and improve the overall customer experience.

Kofax plans to integrate the DotImage technology with the Capture and Transformation modules by the end of the calendar year. The deal is expected to be earnings neutral during the year to June 2011 and earnings enhancing thereafter.

For the year to December 2010 Atalasoft, including the Vizit business, reported total revenues of $3.6 million with an EBITA of $1.0 million showing that the business' software model delivered strong margins.

We view this as a strong bolt-on deal, in-line with the company's stated strategy. The deal, in our view, adds important new functionality at a reasonable price while enhancing the earnings outlook and leaving significant funds for other similar deals. We forecast that after this deal, Kofax will retain more than $80 million of net cash at the end of June 2011, said Clark.

Clark said the stock has been relatively weak since third quarter Interim Management Statement (IMS) at the end of April, down around 4 percent, with some disappointment around the lack of a fiscal 2011 increase in guidance. Clark expects fiscal 2011 results to be strong and view this attractive bolt-on acquisition as a potential positive catalyst for the stock.

Kofax is a global vendor of software for information capture. The company has its operating headquarters in Irvine, California and is listed on the London Stock Exchange. Primary operations are in the United Kingdom, Europe, Asia-Pacific and in Australia, but the company sells its products globally via a large base of channel partners.

Kofax was formerly known as DICOM and started life as a distribution business, over time acquiring a series of proprietary technology businesses that have transformed the company into a highly-regarded software business and global leader by market share in the information capture market.

Atalasoft, a developer and marketer of imaging software development toolkits (SDKs), is a privately held company headquartered in Easthampton, Massachusetts with approximately 20 employees.

Kofax stock fell 0.54 percent to 476.40 pence on the London Stock Exchange at 8:05 am BST.

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