When executive chairman Kevin Loosemore unveiled his big buy in September 2016, he was confidence personified: one reason, maybe, that the shares shot up 15 per cent to £22.43. Micro Focus was riding a roll-up wave — snapping up owners of ageing computer kit and eking out more life. HP was just a “click and repeat”, he said. True, his then biggest buy — 2014’s $1.2 billion Attachmate — was still unproven. But, asked if HP could prove a deal too far, he was relaxed enough to joke: “No, that’ll be the next one.”
But first a bit of back history
Kevin Loosemore like most newly graduated, questioned his life, as well as the direction his life was going in. He would take a job at IBM in the 1980s thinking that this would be the best option. One that would secure his life and provide a sensible future.
Rather than being shown to a room full of whirring machines and screens spitting out chains of ones and zeroes, the 21- year-old Oxford graduate was placed in front of a stack of computer programming manuals and told to start reading.
“At one point, I thought, ‘Have I chosen the right career?’ ” says Loosemore, who is now the executive chairman of FTSE 100 software company Micro Focus.
His first assignment was to write a program for an insurance broker in Dorset, using assembly code. It would have taken an experienced programmer less than an hour to complete, but Loosemore needed several months to crack the puzzle.
This was time well spent, though. While his first client has long since been consigned to history, the knowledge he began to build that day has helped him carve out a lucrative niche by prolonging the life of fusty old code that survives deep in the bowels of corporate IT systems.
Thanks to a series of canny deals, Micro Focus has risen virtually unnoticed into the ranks of Britain’s top 100 public companies. Its market value, already about £5bn, is poised to double next year after it swallows up Hewlett Packard Enterprise’s business software division — an $8.8bn (£7bn) acquisition agreed in September.
Loosemore’s hunger for a takeover stands in stark contrast to the many other British technology companies that have fallen to foreign buyers, notably the chip designer ARM Holdings. It is this desire to be predator, rather than prey, that has earned him the title of Mogul of the Year for 2016.
Berkshire–based Micro Focus is about as far from being a household name as it is possible to imagine, yet its software keeps the wheels of the economy whirring. Your Christmas shopping spree, for instance, would be fundamentally different were it not for software it has helped to develop.
The company looks after the “plumbing” for high-street point-of-sale technology, cash machines, current accounts and many other everyday financial transactions. “We reckon the average person interacts with one of our products indirectly between 15 and 20 times a day,” says Loosemore, 57. “That shows how embedded all this stuff is in the way the world works.”
In an industry of flamboyant bosses, he is as unostentatious as the company he runs. Decked out in pressed chinos, a blue shirt, stripy tie and navy blazer, he could easily pass for a middle manager in an accountancy firm.
Micro Focus was founded in 1976 as a developer of software for the colossal mainframe computers that filled entire rooms. Loosemore joined in 2005, when it went public for a second time.
His grand plan was to amass a portfolio of software businesses that had been neglected or forgotten by their owners. Loosemore is disdainful of the “obsession” with growth that leads many tech executives to jump from one bandwagon to the next. “Most of the software industry tends to be, ‘Here’s a bright shiny new thing, so let’s throw all that old stuff away’,” he says.
In their hunger for the next big thing, software bosses “always overestimate how quickly a business will decline”, Loosemore adds. A prime example is Cobol, an early computer programming language invented by Rear Admiral “Amazing” Grace Hopper as part of a US defence department project in 1959.
Many of the first business computers ran on Cobol. Although it was only ever intended as a stopgap system to help advance the rollout of the new technology, the code is still rattling around in the systems used by almost every bank and insurance company in the world.
When Micro Focus was taken over in 2001, its new private equity owner assumed that Cobol would disappear within seven years. Today the company’s Cobol business is three times larger than it was then, according to Loosemore.
The reality is that it is simply too costly and disruptive for big companies to “rip it up and start again” at the first whiff of a new fad, he says.
Loosemore offers the example of a family that have outgrown their home. “Do you want someone to come and knock down your house? Or do you want someone who will build you an extension and make sure all the plumbing and the electrics work?”
Most large companies have taken the latter route, layering software platform upon platform. Loosemore says leading banks have “hundreds and hundreds” of IT systems that tangle together like spaghetti. Micro Focus designs products that enable the disparate systems to work together.
As other software engineering outfits have dumped businesses that have “become uncool and unsexy”, Loosemore has snapped them up at knock-down prices. That is what has fuelled Micro Focus’s remarkable ascent. Since rejoining the stock market 11 years ago, its share price has grown 16-fold and currently stands at £21.57.
'Most of the software industry tends to be, ‘here’s a bright shiny new thing, so let’s throw all that old stuff away’
Loosemore scooped up a series of smaller businesses before reeling in a whale in 2014. The all-share $1.2bn takeover of American software rival Attachmate trebled the size of his company, putting a rocket under its share price.
This year’s big deal, his swoop on Hewlett Packard Enterprise (HPE), is more audacious still. Loosemore is handing $2.5bn to the Silicon Valley giant, whose shareholders will end up with 50.1% of the stock in the enlarged Micro Focus. The headcount of the company, which is based in the market town of Newbury, is set to rocket from 4,500 to about 20,000.
Loosemore pulls a research paper from a folder. It sketches out a family tree of the assets he is buying from HPE, which is led by Meg Whitman, the billionaire who once ran eBay. Chief among them is the former FTSE 100 stalwart Autonomy, which Hewlett Packard bought five years ago in a $11bn deal that descended into acrimony and lawsuits on both sides of the Atlantic.
He reckons the Californian tech behemoth forked out about $25bn on the assets Micro Focus is acquiring. “There’s enormous value there,” says Loosemore, with the glee of a man who has picked up a treasure at a car boot sale. Idol, Autonomy’s main search software tool, is a “fantastic product”, he adds.
Loosemore thinks he can boost profit margins on the HPE operation by 20 percentage points from the current 21% within three years. Micro Focus has a tried-and-tested method for slashing costs: he and five other senior directors share a personal assistant, and have a well-thumbed playbook for cutting overheads at businesses they acquire.
His life at the summit of the British tech industry contrasts sharply with his upbringing on the south coast. Loosemore was raised in Southampton, where he attended Bellmoor secondary modern. He was the first in his family to remain in full-time education past the age of 16, and read philosophy, politics and economics at St Catherine’s College, Oxford.
His late father, a plumber, struggled to see the merit of a degree. Until, that is, Loosemore turned up at the family home in his first company car: a bright yellow Ford Cortina.
Loosemore stayed at IBM until 1997, then had spells at De La Rue and Cable & Wireless. After a brief return to IBM, where he ran its British division, and a spell at Motorola, he joined Micro Focus as non-executive chairman. He took on the executive chairman role in 2011 after a succession of profit warnings.
Combining the position of day-to-day boss and head of the board goes against corporate governance best practice — and Loosemore initially pledged it would be for three years at most. By the time that period had elapsed, however, Micro Focus had agreed the Attachmate takeover and Loosemore says shareholders asked him to “hang around” while the two companies integrated. With the HPE acquisition not due to be completed until the second half of next year, “we are back to that stage again”, he says.
Loosemore acknowledges there are concerns about the joint role, but insists shareholders want him to remain in place. “Kevin’s role is slightly unusual. But he is instrumental in structuring the deals and has built a very strong team around him,” said Ben Wallace of the fund manager Henderson, one of Micro Focus’ biggest investors.
There has also been criticism from some quarters over the scale of executive pay at Micro Focus. In 2014 the boss took home £12.5m after shares in a long-term bonus scheme vested. Next year he could collect stock worth £21m, provided targets set at the time of the Attachmate deal are met. Under a new scheme linked to the HPE deal employees could receive stock equivalent to 2.5% of the company in coming years, though it was opposed by more than a fifth of shareholders at the annual meeting.
Loosemore brushes aside the criticism. Micro Focus has long argued that boardroom pay must be commensurate with the growing size of the company. “The biggest question I get in the US is whether we’re paying people enough. And the most common question from UK corporate governance people is, ‘Why do you get paid so much?’ ” he says.
Two sets of investors separated by a common (computer) language.
