SUSE Sold Off To Swedish Private Equity Fund

[Nille_kungen]

Since EQT Partners is about evolving businesses i wonder what there plans for SUSE are.
Being used for SAP might be a selling point but SAP is mostly known for being a black hole to throw money in, it's expensive, it doesn't work as advertised and it takes much more time then expected.
SAP is for a gold mine for Consultants.

[F.Ultra]

So riddle me this? If Suse is such a money machine why would Microfocus let such a revenue stream go? And what is up with Suse? It goes from independent to being bought by Novell then Novell was bought by Attachmate who then flung Suse off to Micro Focus who in turn flung it to a private equity group who, (hopefully NOT), will plump it up with debt and leveraged buyouts of other entities in order to just sell it off again in 5 years for a 30% Return On Investment. You DO NOT see this with Red Hat nor with Canonical / Ubuntu....at least not YET.

Probably due to Microfocus want's to focus on their own services and products so selling off Suse means that they both can do just that and that they get a big pile of cash right now. Also even if Suse was a money machine there is always a risk/reward ratio on waiting long enough to get the same revenue as the big payout (and also risking a major loss in the meantime).

According to the press-release:

Micro Focus believes the Disposal Consideration represents a highly attractive enterprise valuation for the SUSE Business at approximately 7.9x revenue and 26.7x Adjusted Operating Profit of the SUSE Business for the twelve months ended 31 October 2017.

So they got 26.7 times the 1 year operating profit in one big payout.

[andyprough]

Some interesting data from this reuters news article on the sale. Micro Focus was in business trouble because of a 2016 purchase of HP software business for $8 billion that has not performed well. This article states that SUSE has been growing, and so it makes sense to sell, since Micro Focus mainly works on squeezing income out of declining tech brands.

It also says Micro Focus could have held out for more than $2.5 billion for SUSE, since analysts value SUSE and Red Hat at about the same level. That surprises me, as I thought Red Hat had much larger revenues than SUSE.

[bridgman]

It also says Micro Focus could have held out for more than $2.5 billion for SUSE, since analysts value SUSE and Red Hat at about the same level. That surprises me, as I thought Red Hat had much larger revenues than SUSE.

This doesn't sound right - Red Hat's market cap is ~$24B (almost 10x SUSE's selling price), which is pretty much in line with relative revenues ($2.9B vs $303M).

Perhaps the analyst message was that RH and SUSE had similar investment potential rather than similar valuation ?

[xiando]

Since EQT is about evolving businesses i wonder what there plans for SUSE are.

I have the impression they tend to hold on to businesses they buy but do try to "manage" them and cut costs and try to make them profitable. It's not great but it's preferable to running up debt and then selling it piece by piece. It's probably not "EQT Partners" buying it, btw, more likely one of the funds they manage.

[timofonic]

I have the impression they tend to hold on to businesses they buy but do try to "manage" them and cut costs and try to make them profitable. It's not great but it's preferable to running up debt and then selling it piece by piece. It's probably not "EQT Partners" buying it, btw, more likely one of the funds they manage.

Did you mean they are going to fire tons of people like Oracle did?

[droste]

Did you mean they are going to fire tons of people like Oracle did?

Probably not as they don't even have as many people as oracle layed off to begin with

[Kavalor]

So riddle me this? If Suse is such a money machine why would Microfocus let such a revenue stream go? And what is up with Suse? It goes from independent to being bought by Novell then Novell was bought by Attachmate who then flung Suse off to Micro Focus who in turn flung it to a private equity group who, (hopefully NOT), will plump it up with debt and leveraged buyouts of other entities in order to just sell it off again in 5 years for a 30% Return On Investment. You DO NOT see this with Red Hat nor with Canonical / Ubuntu....at least not YET.

When Novell bought S.u.S.E it was in the aftermath of the Y2K New Economy Crisis , which left SUSE nearly bankrupt. Novell had more Money than a plan what to do with it. This unfortunately never changed and when Attachmate bought it 2010 , Novell still had no plan, lots of cash , not debt and lots of dangerous patents. This is a prime recipe to be bought on the Stock Market. Attachmate was owned by 3 Hedge Fonds who wanted to make Money which they did in the following 3 years.
The Patents got deposed of securely so the can't hurt anymore and Attachmate was sold to Microfocus 3 years later after it was squeezed out enough.
Microfocus started to invest into the SUSE Business again ( SUSE has at lest doubled the Employees and Revenue since then).

But as it is said Microfocus is a specialist for dying Software , which made SUSE a less then ideal fit for them in the long run.