Micro Focus: UK Software Company That Thinks and Acts Like Private Equity Firm

Doug Ott of Andvari Associates presented his in-depth investment thesis on Micro Focus International (NYSE: MFGP, LSE: MCRO) at Best Ideas 2018.

Micro Focus is software company based in the UK that thinks and acts like a private equity shop tasked with the job of acquiring and managing a portfolio of mature infrastructure software assets. The strategy of acquiring mature assets, improving margins through operational efficiencies, and being keenly focused on cash flows and returns, has produced an annualized total return of 28% over the last decade, as compared to 8.3% for the S&P 500 Index. With Micro Focus having recently completed the acquisition of HPE’s software segment, the company has tripled in size, going from $1.4 billion to $4.4 billion in revenue. Over the next three years, Micro Focus should double EBITDA margins on 80% of HPE’s business, which will add a cumulative $600 million of EBITDA. Pro forma for the HPE acquisition, Micro Focus trades at 13x EBITDA and 19x FCF and remains undervalued, especially considering the high-caliber management team, proven strategy, and continuing opportunity to be the primary consolidator of its market.

About the instructor:

Doug Ott is the founder and Chief Investment Officer of Andvari Associates. Doug founded Andvari in 2013 after working for over three years as an analyst and portfolio manager at a value-oriented investment firm in Atlanta, Georgia. He has a BA in English Literature and History from Washington University in St. Louis and a JD from the Walter F. George School of Law.

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