Micro Focus International is splashing out $540m to scoop up Serena Software – or more specifically, its recurring maintenance revenues, to add to its stable of once great, now slightly dusty software brands.
LSE-listed mainframe specialist Micro Focus is simultaneously raising $216m in a placing to help pay for the deal, together with existing cash and its credit facility which has been jacked up from $225m to $325m. It will cover Serena’s debts of around $252m, paying the rest in cash, valuing the firm at $540m in total.
Serena Software sells application lifecycle management tech for mainframes and distributed systems. Curiously, it is based in Silicon Valley but managed from Oregon and St Albans. Unaudited figures for the year to 31 January show it has revenues of $162m and operating EBITDA of $80m. This was down on the previous year’s $176.2m revenues and $87.7m EBITDA.
More to the point, as Micro Focus puts it, Serena’s customers are “typically highly regulated large enterprises, across a variety of sectors including banking, insurance, telco, manufacturing and retail, healthcare and government.”
Micro Focus said that like itself, Serena “benefits from high levels of recurring maintenance revenues and high EBITDA margins, with consistently strong cash generation and no significant customer concentration.”
The 2015 figures showed license and maintenance revenue accounting for 19 per cent and 73 per cent of its revenues, the balance being made up of revenue from providing professional services.
The only brake on the deal is securing competition approval in the US and Germany, but Micro Focus reckons Serena's “position in the Source Code Change Management (SCCM) segment complements the Micro Focus product portfolio in COBOL Development, Host Connectivity, and CORBA.”
All of which might be considered deeply unsexy areas for the young blades of today’s software industry. But with crusty old mainframes and Unix systems underpinning many of the systems of record which banks and the like are obliged to maintain, it's an area that will be delivering revenues for some time to come – and to a shrinking pool of suppliers, by the looks of things.
That maintenance obligation is regularly highlighted when the financial system is brought to a shuddering halt because a mainframe batch operation has gone awry somewhere.
Hence Micro Focus’ steady accumulation of “oh I remember them” software houses, including Attachmate in 2014, a deal which also brought it Novell and Suse Linux. It snaffled Borland back in 2009. ®