Micro Focus Snatches Relativity, Expands App Modernization

Published: December 15, 2008

by Dan Burger

Helping companies with application modernization and management projects seems to be good business. I'd say that's because those projects make good business sense, as existing software in many instances is poorly aligned with business needs. Micro Focus, a U.K.-based software company that strongly believes in aligning software with business requirements, broadening its product line, and extended its geographical reach, last week bought Relativity Technologies, a company with a similar philosophy and product set, but with a slightly different niche.

Micro Focus has done very well in the COBOL application modernization arena, and it's been on a bit of a buying binge lately as it acquires smaller companies with technologies, customers, and business partners that fit into the growth plan that Micro Focus has put together. Relativity Technologies is but the latest ingredient in the Micro Focus soup.

The flagship product for Raleigh, North Carolina-based Relativity Technologies is Modernization Workbench, a collection of tools designed to help organizations get more business value from their existing software without replacing or rewriting applications. In the Relativity installed base, those applications are most often written in RPG, COBOL, and PL/I, but the Workbench tools are also compatible with other languages and other platforms. In addition to the IBM i, the Modernization Workbench also supports mainframe, Unix, and Windows systems. Not being locked into a single environment is a key attribute.

The $9.7 million that Micro Focus paid for Relativity bought solid technology and an international customer base numbering 400 organizations. The deal, which has been approved by the board of directors at both companies, is expected to be finalized by the end of the year.

Earlier this year, Micro Focus acquired NetManage for $73.3 million, and this summer, it bought Liant Software for $5 million. The company has acquired and integrated four companies in the past two years, including rival COBOL tool maker Acucorp back in May 2007 for $40.7 million. NetManage technology modernized green-screen applications (COBOL and RPG) by adding browser interfaces and Web services that utilize.NET, Java, and XML. Liant products included a RM/COBOL compiler, an open PL/I compiler, and other related tools. Acucorp sold its own COBOL compiler and tools.

The technologies and installed bases of these companies were quickly integrated into the Micro Focus product mix. Just last week, Micro Focus introduced two new products that are multi-platform capable and were rolled out as a direct result of the NetManage acquisition. Within its own installed base, Micro Focus is helping customers modernize mission-critical mainframe apps to run on Linux and Windows boxes in a Web environment.

"We're starting to see a shift from tactical Web-ification projects to very strategic implementations," says Archie Roboostoff, Micro Focus' enterprise integration technology product manager. His example is a manufacturer connecting to supply chain vendors' systems.

It seems likely that the Modernization Workbench tools will be offered to existing Micro Focus mainframe customers allowing them to broaden their modernization efforts to applications outside its core strength, which is COBOL.

In a report published in the Triangle Business Journal, Relativity's CEO, Stephen Maysonave, said his company was squeezed by the down economy and tough capital markets. Relativity had been looking to its primary investor, Wachovia, for an infusion of capital, but that financial source was unable to continue its backing due to the economic crash, which led to the financial institution being sold to Wells Fargo & Company.

"In another environment when the capital was more readily available, would we have taken the option of taking additional capital and continued to grow the company? Probably yes," Maysonave told TBJ. "But in the reality of today, we decided this was the best thing for employees and investors."

The rugged economic trail that all organizations are forced to travel leads to some opportunities, according to a demonstrative Stephen Kelly, chief executive officer of Micro Focus. "CEOs are crying out to slash IT costs," he stated in a statement announcing the deal. "Application modernization projects--which provide payback in weeks--answer that call."

In a financial report for the first half of 2008 that was released last week, Micro Focus raised its dividend by 25 percent (4.5 cents per share) after reporting revenue growth of 24 percent and margins of 43 percent last week. The company reached the mid-point of 2008 with $40.7 million in cash and generated another $42.8 million from continuing operations. According to the report, $61.8 million of the cash reserve was used to fund the acquisitions and restructuring of NetManage and Liant.

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