BY Richard Summerfield
Canadian software company OpenText has agreed to acquire UK tech firm Micro Focus in a deal worth around $6bn. The all-cash acquisition, once completed, will make OpenText one of the world’s largest software and cloud businesses.
Under the terms of the acquisition, the total enterprise value of the deal is around $6bn or £5.1bn, with an equity value of around $2.1bn (£1.8bn). The companies calculated that the per-share price offered, some 532 pence, represents a 98.3 percent premium to the closing price of Micro Focus before the deal was announced.
Micro Focus has experienced financial difficulties in recent years, with declining revenue every year since 2018. Further, its stock price has dropped over 44 percent this year and more than 89 percent for the prior five years. Regardless of these difficulties, Micro Focus remains one of the world’s largest software companies and serves thousands of organisations globally, including many of the largest companies in the Fortune Global 500 and had approximately $2.7bn pro forma trailing 12 months revenue for the period ended 30 April 2022, according to a statement announcing the deal.
“We are pleased to announce our firm intention to acquire Micro Focus, and I look forward to welcoming Micro Focus customers, partners and employees to OpenText,” said Mark J. Barrenechea, chief executive and chief technology officer at OpenText. “Upon completion of the acquisition, OpenText will be one of the world’s largest software and cloud businesses with a tremendous marquee customer base, global scale and comprehensive go-to-market. Customers of OpenText and Micro Focus will benefit from a partner that can even more effectively help them accelerate their digital transformation efforts by unlocking the full value of their information assets and core systems.”
He continued: “Micro Focus brings meaningful revenue and operating scale to OpenText, with a combined total addressable market (TAM) of $170 billion. With this scale, we believe we have significant growth opportunities and ability to create upper quartile adjusted EBITDA and free cash flows. We expect Micro Focus to be immediately accretive to our adjusted EBITDA. Micro Focus will benefit from the OpenText Business System to create stronger operations and significant cash flows, and Micro Focus customers will benefit from the OpenText Private and Public Clouds.”
OpenText intends to fund the acquisition by raising $4.6bn in new debt, $1.3bn in cash and drawing $600m from its existing revolving credit facility. OpenText said it expects cost savings of $400m after the deal closes.