Micro Focus to Buy Borland, Compuware Unit for Testing Tools

May 11, 2009 Alex Woodie

Micro Focus moved aggressively into the market for testing tools last week with the announcement that it plans to buy Borland Software and the application testing unit of Compuware for a combined $155 million. Micro Focus, which bought System i software developer NetManage a year ago, hopes the acquisitions will give it a good chunk of the fragmented market for testing tools.

In making its bids for Borland and Compuware’s testing tool division, Micro Focus is making a bold bet that the market for testing tools, currently about $2 billion globally, is about to expand in a big way. It’s not a bad bet to make, considering the lackluster uptake that this class of tools, known collectively as automated software quality (ASQ) tools, has had in the market. After all, you want to be in front of the curve, not behind it.

Historically, enterprise software developers have avoided using ASQ tools. That’s not to say that all developers are coding cowboys, working by themselves to write an application, and then move on to the next project without a thought about how that application will be maintained. That would be painting with too broad a brush. But the comparison is not too far off. Developers, as a whole, have avoided using testing tooling, largely because the technology has been difficult to use up to this point, but also because it slows them down.

If Micro Focus is right, that decades-long aversion to ASQ tools is about to change, out of sheer necessity. In laying out its reasoning behind the two proposed acquisitions, the British company cites analysts that say the growing complexity of enterprise IT systems will make it more difficult to develop and keep applications running without suffering poor performance. Certainly, new technologies like Web services and service oriented architecture (SOA) are making it harder to balance the performance and stability equation.

Of course, enterprise IT has been growing in complexity from the very beginning. Micro Focus is taking a chance that it’s about to get a whole lot worse, and that coding cowboys are about to relegated to museums. In this regard, the firm has a big believer in Bob Paul, the CEO and president of Compuware, who says the industry is at a “strategic inflection point” with the challenge of application performance.

“Poorly performing applications make companies less responsive, less competitive and less productive,” Paul says in a statement accompanying the acquisition announcement. “New, disruptive technologies like Web Services, virtualization, and cloud computing only increase the difficulty of getting applications to deliver value back to the business.” (One wonders, though, if Paul truly believed his talk of a “strategic inflection point,” why he would agree to sell off that part of the business.)

Technology wasn’t Micro Focus’ only reason for announcing the acquisitions (it never is). It already had one testing tool, Data Express, and was looking to expand its position. It also cited the opportunity to expand its customer base with thousands of new customers, many of them “blue chip” American companies. Indeed, 80 percent of the Global 2000 companies are Borland customers, Micro Focus says. The recent economic downturn has also strengthened its buying power. With $175 million in backing by Barclays, HSBC, Lloyds, and RBS, Micro Focus will finance the entirety of the acquisitions of Borland and the Compuware division.

Micro Focus has signed agreements with Borland and Compuware, both of which are traded on the NASDAQ stock exchange. The $80-million purchase of Compuware’s ASQ division and its Quality Solutions product lines is expected to close this quarter, and will impact about 330 employees who worked in development, sales, and customer-support positions for the Detroit, Michigan-based company.

Micro Focus has agreed to pay $1 per share for each outstanding Borland share, which values the company at $75 million, or $67 million excluding Borland’s net cash and short term investments. It will incur a one-time $40-million restructuring charge as part of the acquisition. The deal is backed unanimously by the boards of both companies, and is expected to close late in the second quarter or early in the third.

While ASQ tooling was the main thrust of the purchase of the Compuware division, Borland has a more diverse product offering that includes: change management software; requirements management software; project portfolio management software; and model driven development software.

The Delphi fourth generation language (4GL) that Borland was so well known for is not part of the acquisition. Borland divested itself of Delphi, which had been swept into its CodeGear division, when it sold CodeGear to Embarcadero Technologies. Incidentally, Delphi is used by some System i shops, including the South American company System Objects, which develops hooks that allow Delphi-developed programs to access DB2/400. It doesn’t appear that the Micro Focus acquisition will affect them.

Being purchase for $1 per share shows how far Borland has fallen. Borland was one of the first Silicon Valley companies to make it big with the first wave of IPOs the early 1990s, when its stock hit a high of almost $90 per share. By the latter half of this decade, however, Borland’s stock has been in steady decline. The company brought in $177 million in revenues last year, down 18 percent from the previous year.

Micro Focus, which is based in Newbury, England, is keen to position itself as one of the IT industry’s new consolidator generals. With five acquisitions in the last three years, Micro Focus has moved quickly beyond its historical niche developing COBOL compilers, predominantly for mainframe shops looking for an alternative to IBM COBOL tooling. First it spent $3.5 million for HAL Knowledge Solutions, an Italian developer of application portfolio management software, in November 2006.

It followed that up with the $40.7-million purchase of rival COBOL tool developer Acucorp in May 2007. A year later, it snapped up NetManage, a developer of emulation and modernization software primarily for System i shops, for $73.3 million. In July 2008, it bought Liant, which made COBOL and PL/I Tools. Its fifth acquisition was application modernization vendor Relativity in December 2008.

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