Read Arma’s view on how open-source software, having dramatically changing the way in which software is developed and distributed, has now entered the financial mainstream in full on Forbes here.
As software companies have sought to demonstrate their commitment to the open-source ecosystem and establish a leading position within it, strategic acquisitions have been their preferred tactic.
While free-to-use software is entirely uncontroversial to the typical technology prosumer, the role of open source for companies focused on selling proprietary software is less readily apparent. However, the evolution of the ‘commercial open source’ business model, centring on the provision of value-added services such as training, customisation and support to corporate users, has eased the tension between the two camps.
As software companies have sought to demonstrate their commitment to the open-source ecosystem and establish a leading position within it, strategic acquisitions have been their preferred tactic. This can be dated all the way back to Google’s acquisition of Android in 2005 – but Microsoft’s $7.5bn acquisition of GitHub in 2018 still represented a landmark moment in the evolving relationship between established tech giants and the open-source community.
EQT’s acquisition of SUSE, a German-headquartered provider of open-source infrastructure software for large enterprises, represented an equivalent milestone in the private equity ecosystem’s thinking about open source.
While early stage venture capital has been active investors in open source, mainstream private equity sponsors have been comparatively slower to seize the opportunity within commercial open source – somewhat unsurprisingly, given the wider field of technology generally has only emerged as a core focus for most private equity funds over the past decade.
EQT’s acquisition of SUSE, a German-headquartered provider of open-source infrastructure software for large enterprises, represented an equivalent milestone in the private equity ecosystem’s thinking about open source. The enterprise value of $2.5bn alone marked the deal out as one of Europe’s largest ever leveraged buyouts of any software business and provided EQT with exposure to a commercial open-source model far removed from the confidential source code, copyright protections and IP safeguards favoured by technology investors previously.
Arma’s inaugural transaction as a newly set-up firm back in 2003 was to advise SUSE on its $210m acquisition by Novell Inc; the firm’s advisory mandate on EQT’s buyout of SUSE from Micro Focus underlined the evolution of the company, our firm and the open-source software space over the intervening 15 years.