OpenText acquires Micro Focus: eDiscovery, information governance and enterprise search do a little goodwill hunting

1 September 2022  – Over the last few years it has been a little tough to keep up on all the mergers and acquisitions in the eDiscovery, information governance and enterprise search markets. We tend to stay focused on enterprise search because these vendors and companies have been slowly spilling over into eDiscovery and information governance. And a good part of this is the fact in all of these markets the commodification of the relevant software, the inability to differentiate, the inability to properly market a product … and in many cases the rising debt burdens for a lot of these companies … drive these mergers/acquisitions.

One of my “save-to-read-later” articles was “Micro Focus Shares Jump After Takeover Bid from Canadian Rival”, the acquisition of Micro Focus by its “rival” OpenText.

The key sentence in the article:

“OpenText agreed to buy its UK rival in an all-cash deal that values the software developer at £5.1bn”. 

What? Micro Focus and Open Text are rivals? Yes. Does Open Text have other search and retrieval properties? Yes. They certainly do. And it is all very interesting.

We know OpenText pretty well. Perhaps their products under the banner “Guidance Software” are the most recognized industry leader worldwide in digital investigative solutions. As we have noted in previous posts, they provide the foundation for government, corporate and law enforcement organizations to conduct quite thorough, network-enabled, and court-validated computer investigations of any kind. Many of our digital investigative clients swear by them. 

Plus OpenText has over the years expanded into numerous other parts of the enterprise software market. The company offers tools that organizations can use to analyze their data for useful business insights, optimize ad campaigns and automate manual tasks.

Micro Focus likewise maintains a presence in multiple market segments. The company sells software development tools that organizations use for tasks such as moving mainframe applications to the cloud and detecting insecure code. As part of its product portfolio, Micro Focus also offers tools for managing cloud and on-premises infrastructure.

And will Open Text become a Big Dog … THE Big Dog … in enterprise search? Maybe. The persistent issue is the presence of Elasticsearch, which many developers of search based applications find to be better, faster, and cheaper than many commercial offerings. But my thoughts on Elasticsearch are well known.

But I want to pay attention going forward to this acquisition. I am curious about the answers to these questions:

• How will the math work out? It was a cash deal, and there is the cost of sales and support and debt service to evaluate.
• Will the Micro Focus customers become really happy campers? It is possible there are some issues with the Micro Focus software.
• How will Open Text support what appear to be competing options; for example, many of Open Text’s software systems strike me as duplicative. Perhaps centralizing technical development and providing an upgraded customer service solution using the company’s own software will reduce costs.

Please notice I did not once mention Autonomy, Recommind, Fulcrum, or Tuxedo. A few years ago Reuters had mentioned that Micro Focus was haunted by Autonomy’s ghost. Not me. But, hey, now that we are talking about it …

I did laugh at British social media noting that the Tories “have destroyed this country over last decade, putting all our companies in the bargain bucket for American (yes Canada is in America!) like OpenText” and “companies are picking up UK companies for pennies on the dollar! Our companies are being snapped up for dirt!”

Ummm … a little technology history.

MicroFocus reached its current size through major acquisitions in the U.S., the most notable of which were AcuCorp, Attachmate, Borland, HPE Software, Intersolv, Ryan-McFarland and XDB Systems. There were 4-5 other acquisitions but smaller.

So is the argument British firms should be allowed to make these kind of acquisitions overseas – but it’s problematic when those same “British firms” (actually, in this – and many other cases – mostly non-British in workforce and revenues) are similarly acquired? Those were all big names from the past – all of whom failed to promote their own products well enough, products no longer seen as “sexy” by the industry despite their excellence. One hopes OpenText will allow decent spending on marketing, advertising and staff retention.

And I can only surmise the debt load was increasingly becoming unsustainable for Micro Focus so this acquisition was a godsend. With a maturity wall fast approaching a sale was the only rational answer for multiple stakeholders. And on the “dark side” there has always been chatter that Micro Focus has consistently destroyed shareholders’ value. It was about time to end its failed “strategy”. Hence my question above about how the OpenText math will work out.

And Autonomy was a steaming hot potato of fraud that was being passed around frantically. I have a lot more respect for Opentext’s founder.

Lastly, I disagree with Gerard Grech (last paragraphs of the article) that UK tech will be part of a “larger journey whereby UK tech becomes a growing, circular innovator and job creator”. Sterling weakness and persistent undervaluation of tech on the UK market makes it destined to remain a backwater of global capital markets. This deal will continue the debate over whether the UK undervalues tech stocks. With Aveva, Avast and Darktrace also heading for the exit — or considering it — it’s a dwindling pack of UK software companies.

The big take-aways: 

• The acquisition of Micro Focus will enable OpenText to gain a presence in several parts of the enterprise technology market where it currently isn’t an established player. Additionally, the deal is set to expand OpenText’s core portfolio of products for managing business records. Micro Focus offers a set of applications that companies can use to back up their business records, organize them and ensure data is managed in accordance with regulations.

•  But most importantly, the acquisition is set to make OpenText one of the world’s largest software and cloud providers. With this deal, OpenText – which also owns cloud backup provider Carbonite, and cyber security company Webroot among other subsidiaries – expands its information management market opportunity to $170bn.