Here’s What the Micro Focus Buyout Means for OpenText (TSE:OTEX)

Canadian software company OpenText (TSE:OTEX) (NASDAQ:OTEX) recently announced its plan to acquire UK-based enterprise software maker Micro Focus (GB:MCRO) in an all-cash deal of around $6 billion, including debt. The deal is expected to boost OpenText’s financials and strengthen its footprint in the combined target market of about $170 billion.

Commenting on the deal, OpenText’s CEO & CTO Mark J. Barrenechea said, “Upon completion of the acquisition, OpenText will be one of the world’s largest software and cloud businesses with a tremendous marquee customer base, global scale, and comprehensive go-to-market.”

According to the company’s management, OpenText will fund the buyout with $4.6 billion in new debt, $1.3 billion in cash, and a $600 million draw on its present revolving credit facility. Subject to customary closing conditions, the transaction is expected to close in the first quarter of 2023.

Is OTEX a Good Stock?

OpenText seems to be a decent stock to grab. OTEX scores an 8 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.

Overall, the Street is cautious but optimistic about the stock, which has a Moderate Buy consensus rating based on four Buys and two Holds. OpenText’s average price forecast of C$63.85 implies upside potential of 32.6%.

Meanwhile, financial bloggers are 100% Bullish on OTEX, compared to the sector average of 66%.

Further, TipRanks data shows that hedge funds, too, are positive about the company, as they bought 885,400 shares of OTEX in the last quarter

Final Thoughts

OpenText seems to be upbeat about the deal, which is expected to strengthen its enterprise information management business. The Canadian software company estimates the transaction to boost its cloud revenues and be meaningfully accretive to its adjusted EBITDA and cash flows in the Fiscal Year 2024.

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