Micro Focus offloads Linux-wrangler SUSE for a cool $2.5bn

Hopes to slow plummet by flinging off, er, profitable bits

SUSE, a 25-year veteran of the Linux world, has been acquired by private equity outfit EQT after less than four years in the hands of former owner Micro Focus.

The deal, announced today, puts a price tag of $2.535bn on the enterprise open-sorcerers, should it be approved by Micro Focus shareholders and the relevant authorities.

SUSE was founded in 1992, emitting various flavours of Linux before its acquisition by Novell in 2003 for the tidy sum of $210m. Novell looked to its new penguin-flavoured friend to staunch the flow of red from its finances. Unfortunately, things didn't go entirely to plan, and the former network supremo was bought by Attachmate in 2011.

The enterprise musical chairs continued in 2014 when Attachmate itself was picked up Micro Focus. In 2017 Micro Focus absorbed Hewlett Packard Enterprise's (HPE) software business. HPE then announced that SUSE was to be its "preferred" Linux partner.

Fast-forward a few months, and the brows of Micro Focus's beancounters were creased with worry as the infrastructure software slinger's results dropped below expectations. The share price at the time tanked, dropping 17 per cent.

Micro Focus CEO Chris Hsu subsequently decided that spending time with his family seemed more fun than piloting a juggernaut made of more offcuts than a cut-and-shut* Ford Fiesta from Honest Bob's Motors. He left after just months in situ.

However, SUSE was a bright spot in the gloom, showing revenues of $164.4m and a solid, if unexciting, growth rate of 13.1 per cent in the six months to October 2017. The SUSE division turned those revenues into a $49.8m operating profit, a smidge down from $50.4m a year ago.

Industry talk began circulating in April that Elliott Management Corporation, a hedge fund invested in Micro Focus, were pushing for the sell-off of the Linux vendor, and the $2.535bn would put a smile on the face of any private equity firm hoping to maximise its investment. If that was indeed the case, today the financiers got their wish with the sale to EQT.

For its part, SUSE is pretty happy with the deal. It will retain its CEO, Nils Brauckman, who seemed pleased to be free of Micro Focus, saying: "Today is an exciting day in SUSE's history. By partnering with EQT, we will become a fully independent business."

Brauckman went on to trot out the sort of thing investors like to hear: "The next chapter in SUSE's development will continue, and even accelerate the momentum generated over recent years," before extolling the virtues of his new best buddy, Swedish private equity firm EQT.

SUSE will fit well into EQT's portfolio. Growth at SUSE is hovering around the 10 per cent EQT likes to see and the FOSS aspect sits nicely with EQT's social responsibility aims.

EQT partner Johannes Reichel explained: "We were impressed by the business' strong performance over the last years as well as by its strong culture and heritage as a pioneer in the open source space."

The latter point is key. SUSE are keen to emphasise that the open-source model is embedded in its corporate culture. With the independence it expects from the deal, it assumes continued participation in the community.

However, since any private equity investor will have an exit plan and certainly expect its money back one day, those lofty ideals will be tested in the not-too-distant future. ®

*Bootnote

British slang describing a car made by welding the back end of one car to the front of another, typically after both vehicles have been damaged beyond repair.