Deep Analysis Blog

OpenText + Micro Focus:
Our Analysis
By Alan Pelz-SharpeFounder & Principal Analyst
Deep Analysis
February 2023
Mark Wahlberg became famous as rapper Marky Mark in the early 1990s, but generations
born since then likely know him only as an A-list Hollywood actor. Similarly, IT veterans know
OpenText as a highly focused Canadian document management company that emerged in thelate 1990s. But today, the firm has little in common with the university spin-off from two
decades ago other than still being headquartered in Waterloo. With dozens of acquisitions
under its belt, OpenText has transformed itself into one of the top 100 software companies in
the world. It is still a significant document management company, but that is only a small partof its overall business today.

Any analysis of OpenText moving forward needs to be seen in that light. The company uses theterm “information management” to describe its work, which is pretty accurate. Information
assets come in countless forms, from mainframe application calculations to businessdocuments to video. Similarly, countless different systems and applications are used togenerate, automate, secure, and govern those assets, from EAI networks through data
analytics to digital asset management systems. Indeed, today OpenText is one of the few firms
to have a presence in providing products and services across almost all of this technologicalcomplexity.
OpenText’s recent acquisition of Micro Focus filled in some of the remaining gaps; it's anacquisition that we previously noted makes a lot of sense. But when navigating such technicaland corporate complexity, it's easy to get lost and confused. In this blog, we provide someexpert industry guidance to help understand and clarify the rationale behind the deal and how
it fundamentally expands and enhances both OpenText “the company” and its massive
customer base.

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1Micro Focus
Micro Focus was founded in 1976 and grew over time into one of the UK's largest software
companies, with tens of thousands of customers worldwide and a massive network of over
7,500 partners. However, there is no avoiding that the company struggled over the past
decade and needed a dramatic turnaround in fortunes or an exit, which came in the form ofOpenText acquiring the company in a deal valued at $5.8 billion, essentially securing its longterm future. Micro Focus brings a lot of customers, a lot of partners, and a huge technology
portfolio. Our focus here is to unravel how the Micro Focus technology portfolio may augment
and expand the existing OpenText product portfolio. In particular, we look at three high-value
elements of Micro Focus that others appear to have overlooked or misunderstood, namely theCOBOL products, the data analytics business Vertica, and cybersecurity.

COBOL
The COBOL programming language has been around since 1959 and is still used a lot today.
COBOL applications typically running on mainframes remain essential in many financial
services, telecoms, energy, and other businesses. And there is no likelihood of that changing
anytime soon. These mission-critical applications are being updated for the digital age, andsome are starting to move off the mainframe, typically IBM hardware, and into the cloud. So,
COBOL applications are not going away, nor are they simply in maintenance mode; instead,they are being rejuvenated and, in many instances, expanded. This expansion is happening
firstly through cloud migration (or at least non-mainframe-based infrastructure), and secondly
through adaptation to better leverage newer development frameworks and structures such asDocker, Java, and .Net. That work, and the products to support it such as COBOL technology
for Azure and AWS, are an essential but overlooked element of the Micro Focus portfolio andhave the potential to provide a great deal of future growth for OpenText.

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2Vertica
The Vertica analytics platform is another key element that Micro Focus brings. Vertica
manages the performance of vast query-intensive data warehouses and, in the future, datalakes. And when we say vast, we mean exabyte scalability. Formerly part of HP, it's one of thefew credible options available for extreme Big Data scenarios. Vertica is used across the globe
by customers in finance, healthcare, energy, and advertising and is the preferred platform for
many. As data volumes and complexity continue to expand rapidly, Vertica has the potential
for a lot of growth. It's also a platform that may have lost some market visibility. But it is a partof Micro Focus that has kept pace with the times and recently launched a SaaS offering called
Vertica Accelerator that runs on AWS.

Security
The ArcSight, Voltage, Fortify Insight, and NetIQ security products that come with this deal
expand OpenText's footprint in this fast-growing market and will sit alongside the Bricata, Zix,and Carbonite products. Just five years ago, OpenText had almost no presence in the
cybersecurity market, but that changed when it acquired Carbonite in 2019. Since then, thefirm has been building out cybersecurity as a core pillar of its business. ArcSight brings a wellestablished security, information, and event management (SIEM) platform. Fortify Insightbrings security orchestration and application security, and NetIQ brings identity and accessmanagement. Together they make OpenText one of the fastest-growing players in the highgrowth cybersecurity market.

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In Summary
OpenText plus Micro Focus is potentially much more than the sum of its many parts, as thetotal addressable market for OpenText has expanded exponentially with this deal. In addition
to the elements already mentioned, Micro Focus brings AI and DevOps capabilities that could
work with and expand OpenText’s existing Core Content offering. Just as importantly, this deal
can bring OpenText further into faster-growth markets and geographies than it has historically
been involved in.

On paper, at least, it all makes sense, but although there is a lot of potential here, pulling it off
will be a task. But again, OpenText is no longer a small Canadian document managementcompany. Over the next two years, it is well on track to become a $10 billion company. And
when you are operating a business at that scale, you will have to deal with enormous
operational tasks. There is no guarantee that OpenText can succeed at this, but I wouldn't bet
against them, and I can certainly see the logic and rationale behind the acquisition. So, as we
said last August when the deal was announced, “unraveling and absorbing this British giant
will take time. It's not a deal without risks, but it's a huge one and, on paper at least, a solidone.”

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4About Deep Analysis
Deep Analysis was founded in 2017 to provide strategic advisory services, grounded in deep
research into technology buying trends and market dynamics.
Deep Analysis differs from other advisory firms in that our research, though informed bytechnology vendors, is not driven by them. We first and foremost focus our analysis on thereal-world business needs and activities of buyers and users of technology. Much of our time isspent talking to buyers and users to ensure that our research and advice reflects real world
realities.
Led by Alan Pelz-Sharpe, with over 20 years of strategic advisory experience and co-author of
the recently published book “Practical Artificial Intelligence – An Enterprise Playbook,” DeepAnalysis provides confidential advice to technology leaders in product strategy, go-to-market,
and growth planning.
Deep Analysis researches markets and technologies to provide confidential advice andguidance for our clients to identify, target, and grow their businesses.

About Alan Pelz-Sharpe
Alan has over 25 years of experience in the IT industry, working withvarious end-user organizations like FedEx, The Mayo Clinic, andAllstate, and vendors from Oracle and IBM to startups worldwide.
Alan was formerly a Partner at The Real Story Group, Consulting
Director at Indian Services firm Wipro, Research Director at 451, andVP for North America at industry analyst firm Ovum. He is regularly
quoted in the press, including the Wall Street Journal and The
Guardian, and has appeared on the BBC, CNBC, and ABC as an expert
guest. Alan currently serves on the board of the industry association
AIIM International.

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