Our Take: OpenText Sells its Mainframe Business to Rocket Software

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Our Take: OpenText Sells its Mainframe Business to Rocket Software

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We may be wrong, but having covered OpenText for over 20 years, it is the first divestiture we have heard of and the only significant one in the company's history.

Late Tuesday evening, OpenText announced that it was selling its AMC (Application Modernization and Connectivity) business to Bain Capital-owned Rocket Software for $2.75B. AMC is a big chunk of the Micro Focus business acquired earlier this year for $5.8B. OpenText buys a lot of companies in the style of a Private Equity firm, but unlike PE firms, it rarely ever divests those businesses at a later date. We may be wrong, but having covered OpenText for over 20 years, it is the first divestiture we have heard of and the only significant one in the company’s history. In short, for OpenText watchers, it’s a very big deal indeed.

Only CEO Mark Barrenechea and the board can know precisely what prompted this move, but in our analysis, it’s smart. First and foremost, the AMC division didn’t fit into OpenText in any way, shape, or form. There was good financial rationale for buying Micro Focus, as my colleague Dan explained at the time of the deal. But technically and culturally, AMC (I think mainframe) was always going to be a square peg that didn’t fit. We saw this misplacement live and direct at the OpenText annual conference in Vegas last month. There was confusion amongst attendees and exhibitors trying to make sense of the placement of a mainframe world in an enterprise software show and, indeed, with OpenText itself. 

But this still leaves a lot of Micro Focus behind at OpenText, including much of their own HP software acquisitions and probably the jewel in the crown, Vertica. These come with a healthy revenue stream and customer base and make sense within a broader OpenText. 

Of course, this also means a new home in less than 12 months for the former Micro Focus teams; Rocket Software appears to be a much better place for them to land. Rocket has quietly but steadily built a significant infrastructure and legacy system support portfolio spanning over 20 acquisitions. Thanks to Bain Capital, it has the money to make the most of them.

Not much more we can say at this point, as the deal was announced less than 24 hours ago, but the big question everyone will be asking is, will there be more divestitures to come? Our take is yes, but not immediately. OpenText has just done something alien to its core, and that will take time to work through and digest within the company. But the smart logic behind this particular deal may give it the appetite for more big deals, followed by lucrative pruning of the acquired assets.

For further reading on the OpenText Micro Focus deal, check these out:

OpenText World 2023 Review

OpenText acquires Micro Focus

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