EQT fund to acquire SUSE for $2.5bn

September 2018 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

September 2018 Issue

Leading open source software provider SUSE Linux, and its associated software business, is to be acquired by Swedish private equity group EQT Partners from multinational software and information technology firm Micro Focus International plc for $2.5bn. The deal is subject to the approval of Micro Focus’ shareholders and customary closing conditions and is expected to close in the first half of 2019.

SUSE has been part of Micro Focus since 2014 when the company acquired The Attachmate Group for $2.35bn and has been run as a semi-independent division ever since. In the year to end April 2017, SUSE generated revenue of $303m and adjusted operating profit of $98.7m, according to Micro Focus. SUSE generated just over a fifth of Attachmate’s total revenues in 2017.

The EQT VIII fund is paying 26.7 times adjusted operating profit of the unit for the 12 months to end October 2017. EQT currently has around €50bn in raised capital across 27 funds. Under EQT’s ownership, SUSE will operate globally as an independent company.

“It was clear from the outset that the SUSE business was an outstanding business with great people, great customers and fantastic products in a vibrant and dynamic market,” said Kevin Loosemore, executive chairman of Micro Focus.

“Today is an exciting day in SUSE’s history. By partnering with EQT, we will become a fully independent business,” said Nils Brauckmann, chief executive of SUSE. “The next chapter in SUSE’s development will continue, and even accelerate, the momentum generated over the last years. Together with EQT, we will benefit both from further investment opportunities and having the continuity of a leadership team focused on securing long-term profitable growth combined with a sharp focus on customer and partner success. The current leadership team has managed SUSE through a period of significant growth and now, with continued investment in technology innovation and go to market capability, will further develop SUSE’s momentum going forward.”

SUSE believes that the sale to Swedish-based EQT will help finance the next stage in its expansion, allowing the company to hire additional software engineers. “Investment into engineers was somewhat restricted under prior ownership. That will change,” said Johannes Reichel, partner at EQT Partners and investment adviser to EQT VIII. “We are excited to partner with SUSE’s management in this attractive growth investment opportunity. We were impressed by the business’ strong performance over the last years as well as by its strong culture and heritage as a pioneer in the open source space. These characteristics correspond well to EQT’s DNA of supporting and building strong and resilient companies, and driving growth. We look forward to entering the next period of growth and innovation together with SUSE,” he added.

Micro Focus said it will use some of the proceeds of the sale to reduce its outstanding debt and could return some of the rest to shareholders. The company has endured a difficult 18 months; its share price has fallen dramatically and revenue is expected to fall anywhere between 6 and 9 percent for the 12 months ending 31 October 2018. Its chief executive, Chris Hsu, also left in March, after just over a year in the role. The sale is also believed to have been partly motivated by the fallout from integration issues following Micro Focus’ ‘spin merge’ with HPE Software in 2017, which tripled the company’s size overnight.

SUSE has changed hands on a number of occasions over the last 15 years. In 2003, US software company Novell acquired it for $210m. Novell intended to use the company to compete directly with Microsoft in the operating system market. However, the attempt was unsuccessful, and Novell was acquired for $2.2bn by The Attachmate Group, which was backed by Microsoft.

EQT’s portfolio includes a range of other technology companies, as well as consumer goods businesses, real estate groups, healthcare services and energy companies.

Richard Summerfield