Life beyond merger: Micro Focus talks HPE software carve-out and defines new vision

Just under 18 months after the big HPE Software merger, we chat to Micro Focus head of head of strategy and solutions Joe Garber to assess whether it was all worth it and how the company is now positioned.

On the first of September 2017, UK-based software company Micro Focus completed a historic (USD) $8.8 billion spin merger with HPE's software business, which saw HPE shareholders pick up 50.1 per cent of the then newly formed organisation. The merger marked the creation of the seventh-largest software vendor in the world, as well as the largest UK tech company listed on the London Stock Exchange.

While the sheer size of the merger was undoubtedly enough to rattle a few cages in the industry, it also came at an interesting time for the two companies, as HPE's software business wasn't performing all that well. HPE itself justified the spin merger by saying while it wasn't getting out of the software business, but the assets it was spinning out were just non-core to the company's priorities.

Reasoning behind the merger

Ultimately, Micro Focus believed that the addition of the HPE software assets would serve to bolster Micro Focus's offerings when the two firms came together, creating a more expansive and cohesive ecosystem of products, while cutting the costs of the HPE business. This was explicitly referred to in the company's initial announcement to investors, which mentioned that once subject to Micro Focus's ‘disciplined operating model', it was an expectation that HPE software's adjusted EBITDA margin of c21% would increase, hopefully becoming more similar to their own of c46%.

Micro Focus did stand to gain a lot of tangible benefits from the alliance. HPE software, as it was operating at the time, was a globally pervasive organisation with over 5,000 partners and over 50,000 customers, including 94 of the fortune 100. While revenues for the organisation may not have been growing at a desirable pace, they were still $3.2 billion for the twelve months to 30 April 2016, with adjusted EBITDA of $658 million. Overall, this would theoretically give the new company $4.5 billion in combined annual revenues.

Although money wasn't the only thing driving the merger. On the product front, HPE software were well versed in a few key areas that Micro Focus were looking to expand in. These included hybrid IT, big data analytics, enterprise service management, and enterprise security. They firmly believed that the merger was a ‘rare opportunity' to build the breadth of the organisation with a complimentary product portfolio.

Was it worth it?

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