SUSE has signalled its intention to IPO as early as Q2, 2021. The company is targeting a valuation of over 7-8 billion Euros. The deal is expected to see two blocks of shares made available. SUSE will issue around $500M in shares and look to reduce its debt. Its current owner, EQT, is also expected to sell shares, according to Reuters. The shares are to be listed on the Frankfurt Stock Exchange.
The deal is not unexpected. In November 2020, Bloomberg reported that EQT was planning an IPO of SUSE with a market valuation of €5B. That the price is now 20-40% higher suggests that the advice that EQT received from banks was that there was a strong demand for the company. The question now is, will that figure go even higher? If there is very strong demand, will either or both companies release more shares?
EQT acquired SUSE from Micro Focus in 2019 for $2.5B. At the time, Enterprise Times posed a number of questions. One was would EQT provide SUSE with a war chest to make acquisitions. That question was answered when SUSE spent $600M to acquire Rancher in July last year. Surprisingly, that has been the only acquisition it has made. Instead, it prefers to grow much of its technology internally.
An IPO delayed by the pandemic?
Another question ET asked was: “Has EQT set a revenue target that will trigger planning for an IPO?” In 2019, tech IPOs were breaking records. It seemed as if EQT would strengthen the management team and then head for a quick exit. Part of that strengthening was bringing Melissa di Donato onboard as CEO. The handover from founder Nils Brauckmann to di Donato was as smooth as possible, and the company accelerated its growth.
What wasn’t expected was the pandemic. That may well have caused EQT to hold on to SUSE longer than it planned. However, that holding on has been good for both parties. EQT backed SUSE with the funds to acquire Rancher. SUSE also increased its revenue to around €500M in its last fiscal year.
This year has seen a return to big IPOs. Going now, before the markets get saturated, makes sense. The current price band should allow EQT to partially or even fully exit SUSE with a considerable profit. It is also possible that this announcement of an IPO is to see if any big players would buy SUSE outright. The acquisition of Red Hat by IBM surprised the market, not least because of the $34B that IBM paid. With the price tag for SUSE one-fifth of that, it could attract bids from other technology companies.
One of those is SAP. It is a fellow German company and has strong links with SUSE at the product level. More importantly, SAP has finally begun to see stronger cloud growth. SUSE’s experience in that space would provide SAP with a business unit that would add value almost immediately.
Enterprise Times: What does this mean?
This is an announcement that has been expected for some time. EQT has been a good steward of SUSE and given it the time to recover from its time under the control of Micro Focus. SUSE has seen a strong increase in turnover and product delivery over the last two years. EQT wanting to exit is not because it doesn’t see a future for SUSE. Instead, it seems a good time to recover that investment and move on.
Will SUSE actually end up with an IPO? Will we see a larger technology company such as SAP step in and buy it before the IPO occurs? We will certainly find out in the next few months. At the moment, both are reasonable options, and it will be interesting to see what happens.