Golden Gate Takes First Tech Buyout –

Notching its third deal, but first control buyout, new firm Golden Gate Capital this month purchased the micro focus division (“Micro Focus“) of Merant PLC for $62.5 million. While the San Francisco firm, founded last year by two ex-Bain Capital partners, committed most of the $35 million of equity put into the deal, a smaller firm based in Irvine, Calf., called Parallax Capital Partners, also took a stake in the company.

Micro Focus develops software products that allow companies to maintain and extend the life of their COBOL applications. (COBOL is a programming language that was developed decades ago but is still a core part of many business operations.)

Golden Gate, started by David Dominik and Jesse Rogers, launched its debut fund in April of 2000 with a $500 million target and closed it nine months later at its cap of $700 million (Buyouts March 12, p. 1). The group raised the fund in order to pursue “change-intensive growth investments in companies that are exploiting the forces of change in technology and the broader economy.”

Dominik, managing director of Golden Gate, said the Micro Focus deal is “consistent with what we had described and anticipated, and what we are working on.”

The deal came about as Golden Gate focused its attention on what Dominik called the legacy software arena. Legacy software includes established and mature software companies serving a combination of middleware and mainframe market places. These companies are attractive, Dominik said, because they are the “basis for the IT infrastructure of the world.”

“As the Internet has been imploding, people have focused their budget dollars and their attention on that infrastructure because it’s really what makes the world work,” he added.

As for whether or not legacy software companies have been affected by the general malaise in the tech sector, Golden Gate’s view is that if the companies have good products and are fulfilling an important need, then their growth prospects are promising.

In the case of Micro Focus, the company seems to be coming out of its adjustment to the Y2K hangover, meaning its revenue is leveling out after somewhat of a roller coaster ride over the last two years.

Additionally, Micro Focus, which until now has been a division of the public Merant, has installed its own sales force that is expected to give the company more selling horsepower.

While management will have to make some adjustments going from public to private, like focusing more on bottom-line earnings, Dominik described the process as “invigorating” for the group.

Micro Focus has more than 450 employees that are located in offices throughout the U.K. and U.S. The company had fiscal year 2001 revenue of approximately $120 million, according to a press release.

As for Golden Gate, the firm expects to close its second buyout deal in the coming weeks. It reached an agreement in July to acquire circuit board maker Nu Visions Manufacturing from Nu Horizons Electronics Corp.

Without counting the Nu Visions deal, Golden Gate has committed about $70 million out of its fund. Its first two deals included commitments to earlier-stage companies Celetron and MusicVision.