back to article Micro Focus offloads Linux-wrangler SUSE for a cool $2.5bn

SUSE, a 25-year veteran of the Linux world, has been acquired by private equity outfit EQT after less than four years in the hands of former owner Micro Focus. The deal, announced today, puts a price tag of $2.535bn on the enterprise open-sorcerers, should it be approved by Micro Focus shareholders and the relevant authorities …

Anonymous Coward

Here goes yet another Suse branding exercise.

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VC's and Hedge Funds

seem to me to be nothing more than 'Debt Generators'.

By that I mean they leave a lot of generated debt behind when they take their money and run.

IMHO, the involvement of these sharks in a business is as good as the Grimm Reaper telling you that you are going to die.

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Re: VC's and Hedge Funds

You may be reading the wrong Penny Dreadfuls.

I have quite a lot invested in VC: the dividends pay the rent! No debt involved: just supporting growing business.

Though not mature business like SuSE: that's a different ballgame. In the absence of actual knowledge, I shall reserve judgement on the new owners.

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FIA
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Re: VC's and Hedge Funds

IMHO, the involvement of these sharks in a business is as good as the Grimm Reaper telling you that you are going to die.

It works the other way too, businesses don't have to take the money.

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Not bad price for free software !!!

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"Not bad price for free software"

And written by amateurs as so many shills commentards seem to have been told to say think.

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Pint

"Not a bad price for free software"

Though still not a smidgin of what RedHat is worth.

Have to say I have had little to do with SuSE over the years, but it is good to see choice still thriving and even better to see F/LOSS as a "social responsibility" bling thing.

May I wish EQT a handsome and healthy return on their "free as in freedom, not free as in beer" (icon for irony) acquisition.

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Re: "Not a bad price for free software"

Where is beer free? Please advise!

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Pint

Re: "Not a bad price for free software"

Rees Mog and Johnson have promised us it. We can have our beer and drink it - trebbles all round.

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Unhappy

We can have our beer and drink it - trebbles all round.

And not get fat.

Don't forget the not getting fat part.

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This post has been deleted by its author

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Happy

Cut-and-shut

Reminds me of HMS Zubian, built from damaged halves of HMS Zulu and HMS Nubian in WW-I.

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Headmaster

Re: Cut-and-shut

Great story, but I think you mean "undamaged halves"?

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Facepalm

Re: Cut-and-shut

I remember a cartoon in a car magazine (Practical Classics?) where the front half of a VW Beetle had been attached to the rear half of a Morris Minor.

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Re: Cut-and-shut

Great story, but I think you mean "undamaged halves"?

You are obviously unfamiliar with government procurement procedures

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Re: Cut-and-shut

The undamaged halves were sold off to India.

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Anonymous Coward

Re: Cut-and-shut

Also the name of an unorthdox female sterilisation procedure.

With not much fun to be had afterwards either.

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Re: Cut-and-shut

I'd never heard of anyone trying that except Red Green.

http://www.youtube.com/watch?v=wfOZ-uajfNE

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Coat

Re: Cut-and-shut

@mjflory:

Eh, I thought he'd used duct tape.

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Boffin

Revenues of $164.4m a year and growing at 13%. OK, I know I don't fully understand business markets, that's why I'm in IT, however even if $164.4m was profits that's nearly 15 years for a return on investment.

So either the new owners know something we don't, or something smells very fishy here.

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Paris Hilton

Underpant Gnomes

1. Sell software available free elsewhere

2. Um,

3. Profit!

Come on - even Paris understands the business model!

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Re: Underpant Gnomes

> 1. Sell software available free elsewhere

I think in SUSE's case, what they sell is not so much the software, but the certainty that it runs on extremely big iron.

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bjr

Makes no sense

Is there a mistake in the reported price? It makes no sense to pay $2.3B for a 25 year old company with revenues of $164M, it makes even less sense for an also ran like SUSE. Redhat is trading at 8.25X revenues, at that multiple SUSE would be worth $1.3B. But SUSE isn't Redhat, it's 1/18th the size of Redhat, it's essentially irrelevant and has zero potential to disrupt anything so you would expect a much lower multiple, frankly I think the price is too high by 10X.

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Re: Makes no sense

The numbers quoted equate to a P/E of 14.3, which is historically pretty average, and well below the current market rate (P/E ratio for the S&P500 at 1315 EDT today: 24.61). So on the face of it, not an unreasonable price,

The buyers might take the view that Red Hat being 18 times SUSE's size represents growth potential for SUSE.

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Anonymous Coward

Re: Makes no sense

The $164m figure was for a 6 month period (last public reporting by Micro Focus)

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(Written by Reg staff) Silver badge

Re: Makes no sense

The $164m is the 6 months of SUSE revenue to October 31 2017 (up 13% on the year-ago period). For the 12 months to April 2017 (last full annual report), it was $303m (up 21% year on year).

(Don't forget, Microsoft splashed out on GitHub that wasn't particularly profitable.)

C.

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Anonymous Coward

I believe the article said $164m over a 6 month period.

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Joke

Re: Makes no sense

> The buyers might take the view that Red Hat being 18 times SUSE's size represents growth potential for SUSE.

And, as we all know, 2018 is the year of the Linux desktop so big opportunities await.

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So either the new owners know something we don't, or something smells very fishy here

It's clear you are not a VC - the usual pattern is:

1) Buy something undervalued (preferrably using debt raised against the company that you are buying).

2) Run the company into the ground, making sure that you extract as much cash as possible by selling off stuff and making them pay "management" fees to to for anything and everything

3) Sell off twitching corpse to someone with more money than sense

.. Profit!

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Re: Makes no sense

The numbers quoted do NOT equate to a P/E of anything; the article has no mention of P for profits, instead quoting an R for revenue figure.

Having said that, a comparison to Red Hat (revenue 800 odd million, market cap 23 odd billion) suggests the price paid for SUSE (revenue 200 odd million) is very reasonable. Btw, Redhat's P/E is a whopping 59!

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(Written by Reg staff) Silver badge

"the article has no mention of P for profits, instead quoting an R for revenue figure."

SUSE's operating profit for the 6 months to Oct 2017 was $49m, more or less matching the year-before's $50m.

I've added this to the article.

C.

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Re: Makes no sense

Well P in P/E is price, not profits. But yeah, I was wrong to pick out the revenue figure (which was actually 6 months revenue anyway) instead of net earnings. All I can say was it was a long lunch.

$2.535b / $98.7m = a P/E of 25.7, slightly above the average of the S&P500, but the point stands that on the face of it the price is not completely unreasonable.

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Swelling price tag, if not profits

A value that went from $112 million to $2.5 billion, and a miserly growth? I'm not a financials man, but that seems steep for a Linux outfit.

The last time I'd looked at Suse was just after it was acquired by Novel. There wasn't enough to recommend it over Red Hat.

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Re: Swelling price tag, if not profits

SuSE is so much better than RHEL it isn’t even funny. For grins, go download a SRPM/.src.rpm for a major package (eg, OpenSSL) from both vendors and compare the work that both of them put into it. Even the code quality is lightyears apart.

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Re: Swelling price tag, if not profits

Interesting comment (I use neither). If true, the deal makes a lot of sense: the new owners expect to translate SuSE's merits into profitable business (whereas it didn't really fit at Micro Focus).

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Re: Swelling price tag, if not profits

Started on Suse in 1999 - dropped it when Novell bought it - not a protest thing, for two releases consecutively, the desktop setup had gone downhill. Think I switched to Mandrake after that (tried Red hat, couldn't get of that fast enough).

tempted to try Suse out again occasionally.

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Re: Swelling price tag, if not profits

> tempted to try Suse out again occasionally.

OpenSUSE is probably your friend, then. It's already been announced that the newly independent SUSE will continue to support the community version, which remains free-as-in-beer. The OpenSUSE chair confirmed on a list this morning:- "Nils Brauckmann (CEO of SUSE) personally called me this morning to assure me this news will have no negative impacts on openSUSE."

Quite a relief, as I run OpenSUSE on quite a few systems, and it has been amazingly solid. Upgrades are a joy. There was a lot to learn for one coming from a preference for Debian and Debian-style systems, but these days it seems harder to go back. It feels more unix-y somehow. I assume this is because OpenSUSE backs directly into what will become the paid-for mainframe-powering full fat SUSE.

We used to run SuSE (as it was capitalised in those days) on most servers, and had bookcases of the full box sets as each new version arrived. We came to the conclusion that, from 5.3, the odd point-numbered versions were great, but the even numbered and point-zero versions were best avoided. Then Ubuntu came along and changed the game for the better, especially when we didn't really need to run a "certified" OS. I came to prefer Ubuntu as a desktop OS, but came back to OpenSUSE around 12.1, probably out of nostalgia. What I found was remarkable quality and a satisfying experience.

I wish them well as independents under new owners.

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Anonymous Coward

Re: Swelling price tag, if not profits

> tempted to try Suse out again occasionally.

If you want to try something a bit out of left field, try one of the BSD's.

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TVU
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Re: Swelling price tag, if not profits

"SuSE is so much better than RHEL it isn’t even funny. For grins, go download a SRPM/.src.rpm for a major package (eg, OpenSSL) from both vendors and compare the work that both of them put into it. Even the code quality is lightyears apart"

SUSE is relatively strong in Europe, it is profitable and it fits in with some of EQT Partners' other IT investments (although most of their investments are non-IT). Above all, I hope that they treat SUSE well.

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Re: Swelling price tag, if not profits

And CentOS is considerably cheaper again.

At least with RHEL/CentOS you can pick and choose which of your systems need support (those that run Oracle, and few other other third party apps). For those that don't need support, run CentOS, and be happy.

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Re: Swelling price tag, if not profits

Even the code quality is lightyears apart.

However, it still uses systemd..

(I've looked at SuSE for many years - its USP is stability since it never uses the latest and greatest but implements stuff that's been used elsewhere for years. I think they use systemd only becuase of Gnome requiring it).

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A company with revenues of $164m and a value of $2.5bn? That would smack of a company with silly levels of capital asset and, in the hands of an asset stripper, little future ...

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What interest would SuSE have for an asset stripper? The only substantial asset is the ongoing business itself: the whole, not parts that could be stripped.

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The value is not the revenue

.. it's the ability to use the company as collateral for a huuuge loan. Then the encumbered husk can be allowed to blow away.

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Anonymous Coward

Does nobody read any more?

The $164m figure was for 6 months, not a full year. Micro Focus reports half-yearly results, so that would be from the last public period.

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(Written by Reg staff) Silver badge

The $164m is the 6 months of SUSE revenue to October 31 2017. For the 12 months to April 2017 (last full annual report), it was $303m.

C.

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Re: The value is not the revenue

And who would lend on that basis?

Debt may be attractive because it's artificially cheap and benefits from a more favourable tax regime than equity funding. But lenders want to lend to good businesses, who will live to service and repay the loans.

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$164 million was six months income.

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Anonymous Coward

Suse does more than desktop linux. It offers its own variant of Openstack, Ceph, management, SAP and most importantly the support to go on top.

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Linux

Bits about SUSE (especially versus Red Hat)

SUSE was (back when I worked there) pretty shit at marketing: RH got the Press even with rather trivial things vs. we were the first to get Linux on a new architecture on forgot (I kid you not) to tell anyone.

SUSE has very very good developers (as RH does), their visibility seems still behind the RH folks (dunno why that is, shit marketing may help).

Back than Red Hat was at times shitty arrogant and some people switched to SUSE just to get rid of them.

If you look at potential (developers, business partners, knowledge, customer base) you may find that the price is not really that high.

Btw. RH got traded just at the right time and SUSE missed that opportunity: if that wasn't so, both would be much more likely on the same level now.

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