Lexmark plans to become an end-to-end solution provider. Perceptive Software is becoming an increasingly important division for Lexmark and is helping the company manage the downturn in the printer and peripherals market. Perceptive experienced annual growth of 62% in the enterprise content management (ECM) and business process management (BPM) business. It also reported $162 million in revenues for FY12.

Lexmark expects ECM-BPM, a $8 billion industry, to grow at about 12% y-o-y. Lexmark is focusing on building product portfolio through inorganic growth. Prior to the Twistage acquisition, the company completed four acquisitions (Brainware, ISYS, Nolij and Acuo) that will be integrated into Perceptive Software and will help drive the company's software business. Lexmark has guided to double-digit growth in Perceptive's revenue for the coming fiscal year. We also expect the seamless integration of Perceptive's array of solution with MPS, to bolster revenue for the company in this division.

Managed print services to drive growth

Research firms such as Gartner and IDC rank Lexmark as the leader in MPS space. Companies are increasingly adopting Managed Printing Solutions to cut costs and simplify printer management. Lexmark acquired AcessVia, a web-based service, to offer cloud enabled MPS to its clients. Moreover, due to this acquisition, Lexmark has gained access to 75 retailers with 60,000 stores.

Service agreements tend to be sticky and MPS is a high margin business compared to selling hardware. MPS integrated with Perceptive's solutions will deliver value to Lexmark's growing client base.

Within Integrated Sealing Systems (ISS) division, MPS revenue grew 7% in FY12 while non-MPS revenue declined by 12%. We expect MPS to become the biggest driver of revenue in ISS division going forward.

Trefis currently has a $29.62 price estimate for Lexmark, which is about 50% over its current market price.