Micro Focus Bolstered by Acquisitions, Real Growth

Published: December 14, 2009

by Timothy Prickett Morgan

British application modernization and development tool maker Micro Focus is doing pretty well despite the weakened state of the global economy and the IT market, thanks in part to acquisitions but also due to some honest-to-goodness organic growth.

For the first half of its fiscal 2010 ended in October, Micro Focus said that its sales were up 46 percent to $198.4 million. The acquisition of compiler maker Borland, mainframe rehosting environment supplier Relativity, and the testing and software quality division from Compuware added $55.3 million to the coffers at Micro Focus, but excluding this additional revenue from acquisitions, the company had 5 percent of organic growth in the first half of the fiscal year.

In May, Micro Focus bought Borland for $111.7 million and the ASQ unit of Compuware for $62.5 million, which The Four Hundred told you all about here; the company bought Relativity in December 2008 for $9.7 million, which we told you about here. Acquisitions have been a big part of the Micro Focus story in recent years. In May 2008, the company bought NetManage for $73.3 million, followed that up with Liant Software for $5 million. Before that, Micro Focus acquired four other companies, most notably rival COBOL toolmaker Acucorp in May 2007 for $40.7 million. (There's something about May that makes Micro Focus want to buy IT companies. . . .) Those acquisitions, say the top brass at Micro Focus, have enlarged its addressable market from about $620 million in 2006 to $6.4 billion this year.

For the six-month period, Micro Focus posted an operating profit of $75.5 million, up 33 percent from the year-ago period, and profit after taxes was down 10 percent to $28.5 million, thanks in large measure to integration costs relating to the acquisitions. During the six months, license sales at Micro Focus came to $84.5 million, up 32 percent, while maintenance fees generated $100.9 million, up 54 percent, and consulting accounted for $13 million, more than double for the prior period. Excluding the Borland and Compuware acquisitions, the company's sales in North America rose by 8 percent, to $63.2 million, while sales in Europe and the Middle East fell by 5 percent, to $51.2 million. The rest of the world accounted for $22.7 million, up 24 percent. The Relativity products posted $6 million in revenues, and the Borland and Compuware products had $55.3 million in the six months.

Looking ahead to the second half of fiscal 2010, Micro Focus said that it expects the Borland and Compuware products to deliver about $160 million in revenues, which is $10 million ahead of initial expectations when the deals were closed in the summer. Micro Focus did not provide guidance for the whole company for the second half of fiscal 2010, and said little about how its CEO search was going after Stephen Kelly stepped down for personal reasons in September.

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