The $8.8 billion deal in which Hewlett Packard Enterprise is spinning out its software division and merging it with Micro Focus will create a new entity in the software development world and make Micro Focus a force to be reckoned with.
The move, which is expected to close in the third quarter of HPE's fiscal 2017, will make once humble Micro Focus into a market leader. Micro Focus has long held a leadership position in providing solutions for COBOL developers and companies modernizing legacy mainframe applications and systems. The merger with HPE Software gives the company a significant boost in the infrastructure software market.
According to reports, HPE had been trying to sell off its software assets for months. Now, as it merges with Micro Focus, the HPE Software business will be part of an organization with approximately $4.5 billion in revenues.
In a statement, Kevin Loosemore, executive chairman of Micro Focus, said, "The combination of Micro Focus with HPE Software will give customers more choice as they seek to maximize the value of existing IT assets, leveraging their business logic and data along with next-generation technologies to innovate in new ways with the lowest possible risk."
According to Mik Kersten, CEO of Tasktop Technologies, which partners closely with HPE Software on tools, those next-generation technologies include tools and software to support Agile development methods and DevOps practices.
The combined Micro Focus/HPE Software entity will have one of the largest installed bases of enterprise application lifecycle management (ALM) software. Kersten said HPE Software recently demonstrated that it can be at the forefront of innovation and modernization with cutting-edge offerings such as HPE ALM Octane, which is an ALM solution designed to help customers accelerate their DevOps processes.
"But with the dozens of new Agile and DevOps tools on the block, the competitive pressure will be high," Kersten told eWEEK. "So we will either see this entrenched tool stack stall, with newer vendors chipping away at it as we saw with [IBM Rational] ClearQuest and ClearCase, or we will see continued investment in the innovation needed to modernize and grow this large customer base. I hope it is the latter, as this new entity will be in a very unique position to innovate the tool chain for large-scale software delivery."
Charles King, principal analyst at Pund-IT, explains that the HPE/Micro Focus deal follows the model HPE used a few months back when it spun out much of its services business to CSC. In essence, HPE gets rid of yet another business unit whose underperformance was a drag on its overall profitability and margins, he said. Shareholders don't really lose or gain anything, since they receive shares in the new company, he added.
Yet, "Micro Focus will enjoy major growth in its overall size and revenues, as well as a nice profit boost," King said. "However, the biggest benefit may be in how the deal broadens the company's portfolio, which was heavily weighted toward traditional mainframe workloads and other legacy technologies. By adding a sizable portion of modern HPE systems and infrastructure software assets and expertise to its quiver, Micro Focus should be able to aim at and hit a considerably larger number of targets than it did a few months ago."
And this should also enable Micro Focus to compete more effectively against CA, BMC and other enterprise infrastructure software players, King noted.
For its part, Micro Focus said its track record of managing emerging and mature software assets indicates that the company will continue to invest in growth areas like big data analytics and security, while maintaining a stable platform for mission-critical software products.