Former OpenText CEO Mark Barrenechea had also served as the company’s chief technology officer.Justin Tang/The Canadian Press
Open Text Corp. OTEX-T has ousted its long-time chief executive officer Mark Barrenechea and signaled it could sell off parts of the company. That marks a sharp turn for Open Text, one of Canada’s most valuable publicly traded technology companies, which bulked up for years through acquisitions but failed to deliver revenue growth from its existing businesses.
The enterprise software company based in Waterloo, Ont., said in a release before markets opened Monday Mr. Barrenechea had been replaced on an interim basis by international sales executive vice-president James McGourlay and that an executive committee would be in charge until a new CEO is hired.
The committee is comprised of chairman and former CEO Tom Jenkins – who has been appointed chief strategy officer – along with other senior executives.
Mr. Barrenechea, who joined Open Text in 2012, had also served as chief technology officer; Open Text named its chief product officer Savinay Berry to fill the role. The company also said it had appointed retired Canadian Forces Major-General David Fraser as lead independent director.
The shuffle follows the exit of chief financial officer Chadwick Westlake last month after less than five months on the job. Mr. Westlake returned to lead his former employer, Equitable Bank, after the sudden death of its CEO Andrew Moor.
Open Text also said it will work with its financial advisers “to explore portfolio-shaping opportunities that enhance focus on the company’s core information management for AI business and deliver long-term shareholder returns.” That could involve selling off what it deemed “non-core assets.”
But it offered no assurance that effort would result in any transactions and provided no timeframe to conclude the process.
Open Text has been a serial acquirer for years, bulking up through acquisitions while delivering anemic but positive organic growth – year-over-year revenue gains from existing businesses – typically in the zero- to 2-per-cent range.
Mr. Barrenechea, a California-based tech veteran who previously led two U.S. enterprise software companies, would often say organic growth was important but also staunchly defended the company’s track record of delivering high operating profit margins typically upwards of 30 per cent of revenue. Software investors typically prefer companies that grow revenues much faster even if it means they deliver lower profits.
But organic growth had turned negative since Open Text bought Britain’s Micro Focus International PLC for US$5.8-billion in early 2023, and its stock price valuation sank to a 7.5 times price-to-earnings ratio, compared to its pre-Micro Focus average of 13 times and less than a quarter of the valuation of its peers.
Investors showed their displeasure about the sluggish stock price and Mr. Barrenechea’s rich pay package at last September’s annual meeting, decisively voting against the company on its “say-on-pay” proposal.
Open Text also made a rare divestiture during its 2024 fiscal year to help pay off debt accumulated for the purchase, selling Micro Focus’s mainframe computer unit to Rocket Software Inc. for US$2.3-billion.
But it was still a more sprawling operation in the past, having diversified in recent years beyond its core business of enterprise content management into areas like security, applications development management and information technology operations management.
The company pulled back last summer from its long-held acquisition strategy to focus instead on returning money to shareholders through dividend hikes and share buybacks, and also promised to deliver more organic growth from its cloud business. By this past May, Mr. Barrenechea was saying the company could make further divestitures.
“I think the board was beginning to get frustrated in terms of the direction of the company,” said National Bank of Canada Financial Markets analyst Richard Tse in an interview.
“They kind of lost their way by becoming so broad. They were looking into having a more manageable, streamlined product line. My guess is Mark wasn’t doing it fast enough and as a result you’re in this situation.”
BMO Capital Markets analyst Thanos Moschopoulos said in an interview the company’s “fundamental challenge” has been organic growth. “I think from an investor psychology perspective there is a significant difference between slightly positive organic growth vs. negative organic growth.”
He added: “The story might have worked out better,” if Open Text had sacrificed some operating profits to invest in the business and drive higher organic growth.