UPDATED 12:23 EDT / JULY 02 2018

INFRA

Linux giant SUSE set to change hands in $2.5B private equity deal

Linux giant SUSE is changing ownership.

Parent company Micro Focus International PLC today announced plans to sell the group to private equity firm EQT Partners AB for $2.535 billion.

The deal comes four years after Micro Focus took control of SUSE through its $1.2 billion acquisition of software maker Attachmate Group Inc., which also included other assets. The sale is expected to be completed in early 2019.

The premium EQT has agreed to pay reflects SUSE’s strong growth under Micro Focus. The group, which was founded in 1992 as the first Linux distributor to target enterprises, generated a $98.7 million operating profit on $303 million in sales during its last fiscal year. Most of its revenue comes from large corporate customers such as Office Depot Inc. and Daimler AG.

Micro Focus as a whole, in contrast, hasn’t fared too well in recent quarters. The company’s shares took a massive hit in March after it slashed revenue expectations, blaming  “transitional effects” related to its acquisition of Hewlett Packard Enterprise Co.’s software business last year. Micro Focus’ stock has recovered little in the months since.

The sale of SUSE should give the company more working capital with which to fuel its turnaround. However, the driver behind the deal may lie elsewhere.

Bloomberg reported in April that activist investor Elliott Management Corp. had taken a stake in Micro Focus with the goal of pushing for organizational changes. The sources who spoke to the publication about the plan said that several private equity firms had started looking into buying parts or all of the company.

As for SUSE, it’s poised to receive a big boost under the new ownership. Speaking to Reuters, EQT partner Johannes Reichel said that his firm will help the Linux distributor hire more engineers and develop additional products. Reichel detailed that one of the main priorities will be building new offerings for hybrid cloud use cases.

Having more resources to invest in product development should help SUSE up its game against rivaling Linux distributors Red Hat Inc. and Canonical Ltd. The two companies have also been looking to the cloud market for new revenue opportunities, a shift that came to the fore during Red Hat’s most recent earnings call two weeks ago.

Image: SUSE

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