Micro Focus links with Attachmate in $1.18bn stock deal

Contact:  Scott Denne

Micro Focus spends 40% of its stock to pick up Attachmate in order to expand its sales, but at the price of its profit margins. The combined company will have more than 3x the revenue of Micro Focus, but only a 25% jump in profits. Micro Focus finished its most recent fiscal year (ending in April) with $433m in revenue and $124m in income. For comparison, that’s 4x the income Attachmate generated on $957m in trailing revenue.

When you take a short-term look at the transaction, Micro Focus is giving up a lot (a 40% stake) for a small boost to its profits. When you look at the long-term benefits, however, it’s a much better deal. For one thing, part of Attachmate’s comparably lower profit margin comes from one-time restructuring costs. If you factor those out, Micro Focus is getting a 50% boost to profits and a tripling of revenue at a relatively cheap price.

While more restructuring and other one-time costs are likely to come as the companies integrate and look to squeeze more sales from Attachmate’s host of software assets, a year or two out from closing, the additional cash being generated by Attachmate could more than make up for the dilution – and help Micro Focus pay down the additional debt it’s taking on from Attachmate.

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