Acquisition of Serena Software

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, NEW ZEALAND, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL. PLEASE SEE THE IMPORTANT NOTICES AT THE END OF THIS ANNOUNCEMENT.

22 March 2016

Micro Focus International plc

Acquisition of Serena Software for $540 million

Placing to raise £150 million (approximately $216 million)

Update on revenue and net debt guidance

Notice of results for the year ending 30 April 2016

Micro Focus International plc ("Micro Focus" or "the Group", LSE: MCRO.L), the international software product group, announces that it has entered into a definitive agreement to acquire the entire share capital of Spartacus Acquisition Holdings Corp. the holding company of Serena Software Inc. and its subsidiaries (together, "Serena" or "the Serena Group") at an enterprise value of $540 million, payable in cash at completion. The acquisition is highly consistent with the Group's established acquisition strategy and focus on the efficient management of mature infrastructure software products.

Founded in 1980, privately-held Serena is a leading provider of enterprise software focused on providing Application Lifecycle Management products for both mainframe and distributed systems. Whilst Serena is headquartered in San Mateo, California the operations are effectively managed from offices in Hillsboro, Oregon and St. Albans in the United Kingdom. It operates in a further 10 countries. The Serena Group's customers are typically highly regulated large enterprises, across a variety of sectors including banking, insurance, telco, manufacturing and retail, healthcare and government. Like Micro Focus, Serena benefits from high levels of recurring maintenance revenues and high EBITDA margins, with consistently strong cash generation and no significant customer concentration. Serena's position in the Source Code Change Management (SCCM) segment complements the Micro Focus product portfolio in COBOL Development, Host Connectivity, and CORBA. Further details on Serena are available at www.serena.com.

Serena will be integrated into the Micro Focus product portfolio and the revenues will be reported in the Development and IT Operations Management Tools sub-portfolio and, consequently, it will give rise to operational efficiencies. The transaction is expected to enhance the Group's adjusted earnings in the year ending 30 April 2017*.

The Group will acquire the Serena Group on a cash and debt free basis for an enterprise value of $540 million in cash, to be settled through the repayment of the Serena Group's net indebtedness at completion (estimated at approximately $252 million) and the purchase of Serena's entire share capital from the vendors (being principally funds managed by US private equity firm HGGC and a trust related to Serena's founder) for the balance of approximately $288 million, subject to customary working capital and other adjustments.

The transaction is being funded through the Group's existing cash resources together with additional debt and equity finance arranged through Barclays, HSBC and Numis Securities. The Group's existing revolving credit facility, which is currently undrawn, has been extended from $225 million to $325 million and Micro Focus is today raising approximately £150 million (approximately $216 million) through a Placing underwritten by Numis Securities, further details of which have been separately announced this morning. Completion of the acquisition is conditional only upon the receipt of competition clearances in the United States of America and Germany. Micro Focus and the Serena Group do not believe there are any material areas in which the two groups compete significantly. In the event that completion does not occur as a result of the financing of the acquisition failing to become unconditional, the Company has agreed to pay the vendors a reverse break fee of $27 million. Subject to the closing conditions being satisfied, it is anticipated that completion will take place during May 2016.

The last period for which audited results are available for the Serena Group is the year ended 31 January 2015 ("FY15"). For this period the Serena Group reported revenues of $176.2 million (of which licence, maintenance and professional services represented approximately 19%, 73% and 8% respectively), Underlying Adjusted EBITDA (as reported by Micro Focus) of $87.0 million and profit before tax of $30.3 million. As at 31 January 2015 the gross assets of the Serena Group amounted to $558.4 million. These figures are as audited under US GAAP, although Micro Focus is not aware of any material differences which would arise under its International Financial Reporting Standards ("IFRS") accounting policies. As part of its due diligence process Micro Focus has also reviewed unaudited management accounts information for the Serena Group's financial year ended 31 January 2016 ("FY16"), which shows revenues of approximately $162 million and Underlying Adjusted EBITDA of approximately $80 million. Approximately $8 million of the decrease in revenues and $3 million of the decrease in Underlying Adjusted EBITDA between FY15 and FY16 are attributable to foreign exchange movements, notably the strengthening of the US Dollar.

Micro Focus will report results for the year ending 30 April 2016 on 14 July 2016. In the nine month period ended 31 January 2016 the Group continued to trade at the upper end of its revenue guidance range for the full year, with outperformance in SUSE revenue growth partially offsetting the anticipated decline in the Micro Focus product portfolio. Due to the strong finish to the comparative period the Company is maintaining its guidance for the full year that revenues on a constant currency basis will decline by between 2% and 4% when compared to the prior period.

At 31 January 2016, the Group had net debt of $1,393.7 million (31 October 2015: $1,454.3 million) after payment of the interim dividend of $35 million, with the Group's cash conversion ratio in the 3 months ended 31 January 2016 at the upper end of its target range of 90% to 95%. It is currently anticipated that net debt at 30 April 2016 (excluding the net proceeds of the Placing) will be in the range of $1,310 million to $1,330 million and will increase by between $335 million and $345 million immediately following completion of the transaction.

Kevin Loosemore, Executive Chairman of Micro Focus International plc commented "We have been tracking Serena for a number of years and are encouraged by the current management team's recent management of a mature infrastructure software company in a similar way to Micro Focus. We are delighted at the prospect of Serena becoming part of the Micro Focus product portfolio where we believe that we will be able to further enhance its operational performance. This acquisition is wholly aligned with our strategy and further strengthens our existing customer and partner offers."

Investor conference call 

Micro Focus will host a conference call for investors today at 9am. Dial-in details are as follows:

International: +44 (0)20 3003 2666

UK Toll Free: 0808 109 0700

Password: Microfocus 

The call will be recorded and available, along with the presentation, on the Company's website: http://investors.microfocus.com/ 

Enquiries:

About Micro Focus

Micro Focus (LSE: MCRO.L) is a global enterprise software Company supporting the technology needs and challenges of the Global 2000. Our solutions help organizations leverage existing IT investments, enterprise applications and emerging technologies to address complex, rapidly evolving business requirements while protecting corporate information at all times. Our Product Portfolios are Micro Focus and SUSE. Within Micro Focus our solution portfolios are COBOL Development and Mainframe Solutions, Host Connectivity, Identity and Access Security, IT Development and Operations Management Tools, and Collaboration and Networking. For more information, visit: www.microfocus.com. SUSE, a pioneer in open source software, provides reliable, interoperable Linux, cloud infrastructure and storage solutions that give enterprises greater control and flexibility. For more information, visit www.suse.com.

IMPORTANT NOTICES

THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND SHALL NOT CONSTITUTE AN OFFER TO SELL OR ISSUE OR THE SOLICITATION OF AN OFFER TO BUY, SUBSCRIBE FOR OR OTHERWISE ACQUIRE SECURITIES IN ANY JURISDICTION IN WHICH ANY SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF THE SECURITIES LAWS OF SUCH JURISDICTIONS.

This Announcement or any part of it does not constitute or form part of any offer to issue or sell, or the solicitation of an offer to acquire, purchase or subscribe for, any securities in the United States (including its territories and possessions, any state of the United States and the District of Columbia (the "United States" or "US"), Australia, Canada, South Africa, New Zealand, Japan or any other jurisdiction in which the same would be unlawful. No public offering of securities is being made in any such jurisdiction.

In particular, the securities of Micro Focus have not been and will not be registered under the US Securities Act of 1933, as amended (the "Securities Act"), or under the securities laws or with any securities regulatory authority of any state or other jurisdiction of the United States, and accordingly no securities may be offered, sold, pledged or transferred, directly or indirectly, in, into or within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and the securities laws of any relevant state or jurisdiction of the United States. There is no intention to register any portion of the offering in the United States or to conduct a public offering of securities in the United States.

The securities have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission or other regulatory authority in the United States, nor have any of the foregoing authorities passed upon or endorsed the merits of the Placing or the accuracy or adequacy of this Announcement. Any representation to the contrary is a criminal offence in the United States.

Forward-looking statements

Certain statements in this interim report are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurance that these expectations will prove to be correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. The Group undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

\* This statement is not intended to constitute a profit forecast and should not be interpreted to mean that the adjusted earnings per share in any future financial period will necessarily match or be greater than in the relevant preceding period.