The News: IT modernization vendor Rocket Software announced that it is acquiring OpenText’s application modernization and connectivity (AMC) division for $2.275 billion as OpenText moves to focus on its cloud and AI markets. The proposed acquisition comes less than one year since OpenText acquired application modernization vendor Micro Focus in a $6 billion transaction on January 31. Read the full press release about the sale on the Rocket Software website.
Rocket Buying OpenText’s Application Modernization Unit for $2 Billion
Analyst Take: Let us just say that we never saw the sale of OpenText’s Micro Focus application modernization unit coming, at least not at this moment, less than a year since OpenText just acquired the business for $6 billion in January. But an interesting deal it is, especially for Rocket Software, which specializes in the IT modernization market across a range of categories from applications to infrastructure and data.
Rocket Software said the purchase of the application modernization tools and technologies from Micro Focus and OpenText occurred because they have been important offerings for years in the enterprise IT marketplace, giving customers new ways to use and leverage their core mainframe applications and run them wherever they choose. For Rocket Software, these were valuable additional tools and products to add to its offerings.
With the acquisition, Rocket Software said it will have a “more diverse modernization portfolio that aligns with customer demands, whether on-premises or through a hybrid cloud strategy.” We believe this acquisition makes lots of sense for Rocket and its customers and that this deal is a good one for the company.
On the other side, OpenText said in a statement that it sold its Micro Focus application modernization business to Rocket so that OpenText can focus on its own core cloud and AI businesses, which are central to the information management vendor. Ultimately, we believe this sale makes sense, but there is still some surprise that it happened so quickly – unless it was part of the Micro Focus acquisition back in January and was simply not discussed earlier. Certainly, that could be the case.
OpenText’s application modernization business helps more than 10,000 customers achieve mainframe modernization and connectivity that allow them to run their mission-critical business applications in hybrid cloud environments without having to rebuild them from scratch. For enterprises that use these complex applications, this functionality is huge.
OpenText’s Application Modernization Unit Helps Rocket’s Strategic Objectives
In making the acquisition, Rocket Software said the deal helps with five of its strategic objectives, including expanding its offerings to better fill customer needs as they continue their own modernization efforts, as well as further helping their customers to get more value out of their decades of investment in their core business applications.
The move will also solidify Rocket Software as a hybrid cloud leader, the company said, while expanding Rocket’s expertise and innovation with a wide range of technologies, including generative AI. In addition, said Rocket, the acquisition of the AMC unit from OpenText and Micro Focus will help strengthen Rocket as a valued partner to help customers resolve their critical business technology challenges and grow their operations.
We see this acquisition as a bold and strategic move by Rocket Software’s CEO and President Milan Shetti as he works to drive the company’s growth and reputation in the enterprise tech space. Rocket said the deal is expected to close in the second quarter of 2024, subject to any required regulatory approvals and other customary closing conditions.
Gains for OpenText from the Sale
OpenText’s latest earnings report in early November showed that the company is seeing healthy growth in its subscription and cloud service revenue as it shifts to a growth model fueled by product innovation and go-to-market execution, according to CEO and CTO Mark J. Barrenechea. We see the wisdom and success of this strategy, and the sale of the AMC unit to Rocket Software is apparently part of that continuing mission.
As we see it, OpenText’s sale of the AMC business unit aligns with the company’s broader strategic objectives, which include optimizing its resources and maximizing shareholder value by focusing on its core competencies and growth areas. This approach will allow the company to focus on its Enterprise Information Management (EIM) products, including Content Services, Business Network, and Discovery, which make sense for the company as it pivots many of its offerings to be AI-focused.
Industry Implications for the Sale of OpenText’s Application Modernization Unit
The sale of the AMC division to Rocket Software is also significant in the context of the mainframe software industry, highlighting the importance of strategic realignments being made to help technology companies thrive in a dynamic market. We believe that OpenText’s decision to focus on its core solutions while selling a non-core business unit represents a prudent approach to resource allocation in the broader context. At a more mainframe-centric level, it also has implications for the ongoing lawsuit where IBM is still actively pursuing Micro Focus for alleged damages from some of Micro Focus’s actions relating to its Enterprise Suite.
As we said, this move is a bold move by Rocket Software to bolster its portfolio with this purchase, and for OpenText, which is shedding a recently purchased business unit to make way for growth in its core business directions. We like that kind of leadership and moxie and we applaud strategic decisions that show some nerve and seek positive results.
It will be fascinating to watch both Rocket Software and OpenText as these two companies navigate their paths into 2024. We expect they will both do well following this strategic realignment for both companies.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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Steven engages with the world’s largest technology brands to explore new operating models and how they drive innovation and competitive edge.
