OpenText has entered an agreement to acquire British software company Micro Focus for $6 billion in cash and assumed debt, the latest move in CEO Mark Barrenechea's growth-by-acquisition strategy.
The deal is expected to close in the first quarter of 2023, pending regulatory approval. OpenText plans to meld Micro Focus's software into its operations by the third quarter of 2023.
The deal, if it goes through, would nearly double OpenText in size. For its fiscal 2022, which ended in July, OpenText reported revenues of $3.5 billion. In its fiscal 2021, Micro Focus reported $2.9 billion in revenue.
OpenText has grown over the last decade through acquisitions of companies such as enterprise content management stalwart Documentum and security software company Carbonite. Barrenechea has likened his acquisition strategy to that of a publicly traded company following the roadmap of a private equity firm.
Micro Focus itself grew by acquisition. Probably its most well-known was Hewlett-Packard Enterprise's software division in 2016. The company has seen success in lifting and shifting mainframe COBOL code to the public cloud, and has made strides in Asia-Pacific markets. Customers need to run that code in hybrid cloud environments, assure uptime and maintain security. It supports SaaS, on-premises and cloud IT, and offers app dev, RPA, ITSM, data analytics and security tools, as well as professional services and support.
"Digital transformation is the largest opportunity in the history of our industry," Barrenechea said in a Friday call with investors. "It entails extreme automation and the digitalization of all business operating in the cloud, running at global scale, eliminating friction from processes [and] the modernization of applications."
OpenText has migrated 3,000 customers in recent years from on-premises to private cloud enterprise IT, Barrenechea said. He predicted that a combined Micro Focus and OpenText will find further opportunities with more new cloud bookings for its software and professional services businesses through 2025, as well as renewals of current business. In an interview with BNN Bloomberg, Barrenechea said the merged companies will "look a lot like Oracle or SAP."
While it may appear that some of Micro Focus's business is far afield of OpenText's strongholds of enterprise content management, legal and CX tech, together the companies do business in some capacity with 98 of the top 100 largest companies in the world and have large government customers as well, said Predrag Jakovljevic, an analyst at Technology Evaluation Centers.
A new combined OpenText and Micro Focus could, in theory, manage the modernization of legacy software systems that still are pervasive in enterprise IT, some of which are difficult to re-engineer in public cloud environments such as AWS and Azure. How that plays out as the companies combine operations during the next 18 months will determine success or failure.
"Basically, on paper, they can now offer everything from the ancient COBOL and mainframes to the cloud and low code," Jakovljevic said. "But the devil is in the execution."
Don Fluckinger covers enterprise content management, CRM, marketing automation, e-commerce, customer service and enabling technologies for TechTarget Editorial.