Canada’s Open Text Corp. struck a deal to buy UK software firm Micro Focus International Plc for about $6 billion including debt, building on a strategy of growth by acquisition.
(Bloomberg) — Canada’s Open Text Corp. struck a deal to buy UK software firm Micro Focus International Plc for about $6 billion including debt, building on a strategy of growth by acquisition.
The Waterloo, Ontario-based company is offering 532 pence per Micro Focus share, a 99% premium to Thursday’s closing price. Open Text said it will fund the cash takeover bid with $4.6 billion in new debt, $600 million from an existing credit line and cash on its balance sheet.
Shares of Micro Focus jumped 93% to 515.6 pence at 8:05 a.m. in London on Friday, the most on record. The stock had fallen 39% in the past year through Thursday’s close.
The Newbury, UK-based company sells enterprise software to thousands of organizations including Airbus SE, Hewlett Packard Enterprise Co. and Kellogg Co., according to its website. Its products help companies with cybersecurity, IT operations management, communications and messaging. Micro Focus says it does business with a majority of the Fortune Global 500.
But the company has seen declines in its revenue and adjusted earnings before interest, taxes, depreciation and amortization every fiscal year since 2018.
Under Chief Executive Officer Mark Barrenechea, Open Text has made a series of deals to bolster its software portfolio in recent years, including email encryption company Zix Corp. and cybersecurity firm Carbonite Inc. The Micro Focus acquisition is notable for its relative size: it’s worth nearly half of Open Text’s current enterprise value of $12.8 billion, according to data compiled by Bloomberg.
“Micro Focus brings meaningful revenue and operating scale to OpenText, with a combined total addressable market of $170 billion,” Barrenechea said in a statement. “With this scale, we believe we have significant growth opportunities and ability to create upper quartile adjusted Ebitda and free cash flows.”
In an interview with Bloomberg last year, Barrenechea bemoaned the price of deals, saying the company’s desired targets were “too expensive, too overvalued.” The correction in technology stocks has brought valuations down quickly.
Open Text is paying 2.2 times Micro Focus’s pro forma revenue for the past 12 months. The company said it sees the deal closing in the first quarter of 2023.
Bloomberg first reported Open Text’s interest in Micro Focus in 2019.
(Updates with shares in third paragraph.)