Open Text Corp. OTEX-T ramped up its long-time acquisition spree Thursday, saying it would buy the British software company Micro Focus International PLC MFGP-N for about US$2.1-billion, in a deal that will total nearly US$6-billion when Micro Focus’s debt is included.
Both companies sell business-to-business software to a wide range of industries. The 532-pence-per-share value (about $8.14) is a 99-per-cent premium over Micro Focus’s Thursday closing price on the London Stock Exchange.
Open Text said it will fund the deal with US$4.6-billion in new debt, including both a bridge loan and term loan, as well as US$600-million in existing debt and US$1.3-billion in cash. “This is the right company and right opportunity, with amazing products, strong talent, marquee customers and valuable intellectual property – and a business that can gain value in the Open Text software system,” Open Text chief executive officer Mark Barrenechea said on a conference call with analysts late Thursday.
Newbury, U.K.-based Micro Focus was first formed in 1976. The data-management and analytics company merged with Hewlett Packard Enterprise Co.’s HPE-N software business in 2017. Its revenue for the 12 months prior to April 30 was US$2.7-billion.
Three-decade-old Open Text is based in Waterloo, Ont. It’s one of the largest software companies on the Toronto Stock Exchange, worth $12.8-billion at the close of trading Thursday. Its suite of offerings for enterprises includes customer-management software, process automation and cybersecurity.
In a news release, Mr. Barrenechea said that the combined companies would have an addressable market of US$170-billion. “With this scale, we believe we have significant growth opportunities,” he wrote.
The tech sector has faced a downturn since late last year, as inflationary pressures were met with rising interest rates, which drove up the cost of capital and depressed valuations for many companies that grew significantly during the pandemic.
With these lower valuations, takeover activity is beginning to reshape the Canadian technology industry, as domestic companies use acquisitions to expand and foreign companies target domestic businesses. Canadian tech companies were involved in 232 deals worth $3-billion through the first six months of the year, according to statistics compiled by investment dealer Crosbie & Co. That was the most mergers-and-acquisitions activity in any sector of the country’s economy.
Last year, which was a record year for such activity, domestic tech companies were involved in 551 deals, valued at $57-billion.
A number of Canadian tech companies are serial acquirers, with expertise in snapping up and integrating smaller businesses. Along with Open Text, the list of shopaholics includes Constellation Software Inc. CSU-T, CGI Inc. and Descartes Systems Group Inc DSG-T. Banks are supporting the deal-making with lending. Barclays Bank PLC, BMO Capital Markets Corp., Royal Bank of Canada and Citigroup Global Markets Inc. are providing OpenText with the loans to fund the Micro Focus takeover.
Open Text’s share price has dropped about 30 per cent since peaking last August. Despite the decrease, which began before the broader tech downturn, Open Text has avoided the significant damage faced by other companies, such as Shopify Inc. SHOP-T, which has fallen nearly 80 per cent since November.
Last week, Mr. Barrenechea told Canadian tech-news publication The Logic that, although the company has deferred some projects and expansions, the multiple macro crises facing the industry have not deterred him. “We see the opportunity that’s being created by the poly-crisis,” he said.
Open Text said this month that, in its most recent fiscal year, which ended in June, it brought in US$3.5-billion in revenue and a profit of US$397-million, or US$1.46 per diluted share.
It has been scooping up other companies for two decades, including, in recent years, the cloud data-management company Liaison Technologies Inc. and the data-security companies Zix Corp. and Carbonite Inc.
Open Text and Micro Focus said they expect the deal to close in the first quarter of 2023, and that the combined entities’ cloud revenues would expand by their 2024 fiscal year. When the transaction closes, Mr. Barrenechea said, the combined company will have about 25,000 employees.
With a report from David Milstead
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