Why Open Text (OTEX) buys Micro Focus (MFGP) for $6 billion

  • Open Text (OTEX) has announced the purchase of Micro Focus for $6 billion. These are the details.

OpenText announced that it has reached an agreement on the terms of a recommended cash offer to be made by Open Text Corporation, through its wholly owned subsidiary OpenText UK Holding Limited (Bidco), to acquire all of the issued shares and to issue capital of Micro Focus (MFGP) at a price of 532 pence per share, implying an enterprise value of approximately $6 billion on a fully diluted basis.

Micro Focus is one of the world’s largest software companies and serves thousands of organizations worldwide, including many of the top Fortune Global 500 companies and has earned approximately $2.7 billion in pro revenue. formed over twelve months (TTM) for the period ending April 30, 2022 .

OpenText values ​​Micro Focus’s strong brands and culture and values ​​the skills and experience of Micro Focus’s management team and employees.

Terms of acquisition (approximate figures)

— Total purchase price of $6.0 billion, including Micro Focus cash and debt

— Total purchase price is 2.2x Micro Focus TTM pro forma revenue

— The total purchase price is 6.3x the pro forma TTM Adjusted EBITDA of Micro Focus

— Expected cost synergies of $400 million, including Micro Focus’ previously announced cost savings program of $300 million (net of inflation), plus $100 million of additional cost synergies

— Targeting to be on the OpenText operating model within 6 quarters of closing

– Expect a significant increase in cloud revenue, adjusted EBITDA and cash flow in fiscal year 2024

— The all-cash consideration for the acquisition will be funded by $4.6 billion in new debt, $1.3 billion in cash and a $600 million draw on our existing revolving credit facility

— The acquisition is expected to close in the first quarter of calendar year 2023, subject to the satisfaction of certain conditions.

The acquisition is subject to approval by applicable Micro Focus shareholders, Scheme court sanction and the receipt of certain antitrust and foreign investment approvals. And the Company expects to reduce covenants or borrowings under the Bridge Loan Agreement by accessing the debt capital markets directly or through certain affiliates before or after the Acquisition closes.

KEY QUOTES:

“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. Once the acquisition is complete, OpenText will be one of the largest software and cloud computing companies in the world with a massive marquee customer base, global scale and comprehensive go-to-market. OpenText and Micro Focus customers will benefit from a partner who can help them even more effectively accelerate their digital transformation efforts by unlocking the full value of their information assets and core systems.

“Micro Focus brings significant revenue and operational scale to OpenText, with a combined total addressable market (TAM) of $170 billion. With this scale, we believe we have significant growth opportunities and the ability to create adjusted EBITDA and top quartile free cash flow. We expect Micro Focus to be immediately accretive to our Adjusted EBITDA. Micro Focus will benefit from OpenText Business System to create stronger operations and strong cash flow, and Micro Focus customers will benefit from OpenText’s private and public clouds.

“We intend to finance the acquisition entirely in cash with existing cash, new debt and our existing revolving credit facility. OpenText does not plan to raise equity to finance the acquisition. We are committed to providing investors with better visibility on our high value-added business sectors, by offering a net leverage ratio(3) below 3x over 8 quarters and by continuing our dividend program, and we plan to have Micro Focus on our operating model within 6 quarters of closing the transaction.

— Mark J. Barrenechea, CEO and CTO of OpenText

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