OPEN TEXT CORPORATION M&A CALL | NOV 08, 2021
no equity consideration, no dilution, no debt, no transition services agreements in the transaction. The transaction is expected to close within 90 days, subject to normal closing conditions. The transaction is financially compelling. We expect it to be additive towards organic growth, cloud revenue and recurring revenue. And once the transaction has closed, Zix will be immediately accretive to our adjusted EBITDA and free cash flow.
In short, Zix meets our cash base returns criteria for acquisitions. We’re paying approximately 3.5x trailing 12 months revenues. Upon closing, the Zix resell business will be reported on a net basis to conform to OpenText revenue. We expect it to be on our operating model within 12 to 18 months. We advise investors and analysts do not model the acquisition until after the acquisition closes and we communicate further. And as per our normal practice, more detailed financial projections and target models will be provided on our next earnings call, including any updates to our F ‘22 target model and longer-term aspiration.
So why Zix? SMBs are the engine of economic growth. In the U.S., SMBs were 44% of GDP and 66% of new jobs. Some of the first activities a new business performs is purchasing computers, setting up a website and a corporate e-mail account. At the same time, these businesses often lack the skill to adequately protect their businesses from phishing and malware attacks. As I’d like to say, if you think it’s hard to get a security resource in Toronto, try Wichita Falls. More than 50% of SMBs that get breached often don’t discover that they have been breached for weeks, months or years, and e-mail remains the primary form of communication is the primary method of attack.
OpenText’s vision for SMB partners is to provide these businesses with a single leading information management platform that protects their customers’ websites, their e-mails and their key business content and full recovery in the event of a breach. Imagine a single platform that covers everything from e-mail, backup, threat management, communications and content sharing electronic signature.
OpenText is already a market leader in threat intelligence with BrightCloud, threat profession with Webroot and backup and recovery through Carbonite and electronic signatures through our e-sign offering. With Zix, we are adding additional e-mail encryption and protection and enhancing our current backup and information archiving capabilities.
Zix is headquartered in Dallas, so about 15 miles from our R&D center, with a large office in Gulf Breeze, Florida as well as several smaller offices around the world, including Ottawa, Canada. Zix has a long track record of ARR growth and competitive wins. Over the last 12 months ending June 30, Zix posted $235.6 million in revenue with 15% PTM year-over-year revenue growth. 89% of this revenue is cloud-based and 100% is subscription-based. And at an adjusted EBITDA margin of greater than 20%, we are inheriting a well-run business. With over 100,000 plus customers and more than 5,600 MSP partners, most of them are incremental to our existing distribution. Combined, we’ll have one of the market’s most comprehensive cyber resilience offering for SMB customers. This is a very big opportunity for OpenText and Zix.
And let me run through 6 high-level points. First, this grows OpenText share of information management market, primarily in the security and protection cloud. Two, it enhances our SMB portfolio in data protection, threat management and e-mail security. Three, it’s a meaningful expansion of our MSP distribution capabilities from approximately 17,000 today to more than 21,000 on a combined basis, making us one of the largest in the MSP market. Fourth, it increases our ability to upsell and cross-sell into the SMB channel. Specifically, we see an opportunity to take our Carbonite and Webroot products to Zix MSPs and Zix products to our MSPS. Some of the primary use cases for the combined company include advanced e-mail encryption and threat protection, cloud-to-cloud backup and information archiving.
And as you’ll hear at OpenText World next week, we’ll be adding several more SMB channel-ready products to market in content business network, in security and data protection. OpenText MSPs will increasingly benefit from ease of use and ease of management from our growing SMB suite of products.
Fifth, it strengthened the OpenText relationship with Microsoft. Zix has a 20-year relationship with Microsoft, further strengthening OpenText’s strategic positioning with one of the most trusted partners in the world, Microsoft. Zix is a top 5 Microsoft managed cloud solution provider, or CSP, and only 1 of 9 in North America. Zix has generated more than 14,000 M365 migrations and has over 90,000 joint customers. Microsoft is one of the many partner relationships we expect to add to our SMB platform over time.
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