HPE valued at 11.4x EBITDA, giving MCRO access to HPE's 50,000 customers
Companies: HP Inc., Micro Focus International plc
Micro Focus International has announced that it will acquire HP Enterprise's software business for $8.8bn, in a move that will create one of the largest pure-play infrastructure software companies in the world with combined revenue of $4.5bn and EBITDA of $1.35bn.
The deal gives HPE Software an 11.4x adjusted EBITDA valuation and gives MCRO access to HPE's 50,000 customers (with 94 in the Fortune 100) and about 5,000 partners.
HPE Software, who offer products in several fields including IT Operations Management, Security, and Big Data Analytics, had revenue of $3.2bn and EBITDA of $658m in the year to 30 April.
Announcing the merger this morning, MCRO said it was a "Rare opportunity" that would significantly increase the company's scale as HPE operated in "adjacent and complementary" areas with similar characteristics. The new group will have revenue of $4.5bn and EBITDA of $1.35bn.
HPE has a high proportion of recurring revenue and strong cash generation, and Micro Focus believe there is considerable opportunity to improve profitability through applying its disciplined operating model, and helping the business improve its adjusted EBITDA margin from 21% to nearer MCRO's at 46%, which it says is possible by the end of the third full financial year.
The deal is expected to complete before the middle of next year and will see MCRO pay HP $2.5bn up front for the business with the remaining $6.3bn coming in the form of a 50.1% holding in the new company. HPE will have the power to appoint its own executives to Micro Focus, but the company will continue to run itself day to day.
The deal comes after HPE saw an 18% decline in Yoy revenues and 28% drop in its licensing sales, and the company believes combining with Micro Focus can help it halt the decline.
Kevin Loosemore, Executive Chairman or MCRO said:
"The merger will create one of the world's largest infrastructure software companies with leading positions across a number of key products and represents a compelling opportunity to create significant value for both companies' shareholders by applying Micro Focus' proven approach to efficient management of mature software products. The combination will give customers more choice as they seek to maximize the value of existing IT assets, leveraging their business logic and data along with next-generation technologies to innovate in new ways with the lowest possible risk."
Meg Whitman, President and CEO of HPE said:
"We believe that the software assets that will be a part of this combination will bring better value to both our customers and shareholders as part of a more focused software company committed to developing these businesses on a stand-alone basis."