Where next for SUSE?

Where next for SUSE? The company mentioned its independence no less than 12 times in a recent notice to the press. Flush with investor money, can the business finally steer its own ship to success?

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SUSE announced that it had once again become an "independent company" and the largest open source one in the world, at that, following the completion of its purchase by private equity firm EQT Partners from its old owner Micro Focus last week.

In the press announcement SUSE mentioned its newfound independence no less than 12 times, a pithy statement that strikes out at its former owners as well as the recent mammoth IBM-Red Hat deal, which, if it gets approved, will be the largest software acquisition ever.

© SUSE
© SUSE

Is an independent SUSE about to get its day in the sun? Or will it find itself chipped into something more to the liking of its new owners before moving house once again?

The history

SUSE's history of ownership is a long and winding road. Way back in the early 90s the company was founded and first sold the Linux Slackware and SLS distros localised for Germany. But not long afterwards it created its own distribution, with S.u.S.E Linux 1.0 appearing in 1994.

Fast forward to the early 2000s and the company, more established in the European market than Red Hat, pushed forward into the enterprise with SUSE Linux Enterprise Server.

Shortly afterwards, in 2003, Novell announced its intention to buy SUSE for $210 million. This was completed in January 2004. It was during SUSE's stint at Novell that the openSUSE project - which opened up the development process to any developers or users - came into existence.

But in 2010, the now-defunct Attachmate Group said it would buy Novell, transferring ownership of SUSE yet again. SUSE operated as its own company for a time, but under the Attachmate umbrella.

Just four years later, in 2014, Attachmate and British software firm Micro Focus merged, bringing SUSE under the ownership of Micro Focus International.

In early 2017, SUSE (operating under Micro Focus), bought assets relating to OpenStack and Cloud Foundry from Hewlett Packard Enterprise. And then HPE's software wing was bought by Micro Focus for a staggering $8.8 billion, at which point SUSE became the preferred Linux distro for the group that was formerly HPE software.

Take a breath, we're almost done.

In March 2017, Micro Focus CEO Chris Hsu left the company to spend time with his family. Around this time Micro Focus shares tanked, as the company announced expected declines in revenues following the massive HPE software buy. The intention to sell SUSE lifted Micro Focus' shares a touch.

Freedom!

Then in July 2018, it was announced that SUSE Linux was to be sold for $2.5 billion to Swedish private equity group EQT Partners, the latest in a decades-long game of hot potato. The sale represented a third of Micro Focus' value, and the British company said it had thought of selling off SUSE for some time prior.

EQT, one of the biggest equity funds in the Nordics, said that it hoped increasing trade tensions between Europe and the United States would help position SUSE against one of its main rivals in enterprise Linux, Red Hat, which has traditionally enjoyed a stronger presence in America.

EQT told Reuters at the time that it would be investing more seriously in engineering at SUSE, something that had been "somewhat restricted under prior ownership".

SUSE noted in 2018 that Linux Enterprise dominated SAP HANA deployments, and that the company has customers in nine of the 10 top aerospace companies, as well as the largest carmakers, the top banks, and the world's supercomputers.

IBM announced its intention to acquire rival Red Hat in late 2018, in an enormous $34 billion deal - potentially the biggest software acquisition of all time - that was widely seen as a move to expand IBM's footprint in the cloud, as well as bolster its open source capabilities.

So we come full circle to last week's completion of the SUSE sale to EQT.

An independent company

In a strangely worded statement as part of the completion process, SUSE declared that it had moved "to independence," reaffirming its "commitment to customers, partners and open source communities" as the "industry's largest independent open source company".

It said that its newfound freedom from Micro Focus was part of its "ongoing momentum, portfolio expansion and successful execution in the marketplace" and announced three appointments for the executive board.

EQT's cited intention to position SUSE as a leader in open source that is closer to Europe than Washington is an interesting one, especially as Europe seeks closer ties with China, which is currently locked in a trade war with America.

While the sale was eclipsed in terms of value by the Red Hat-IBM deal, and was behind Microsoft's 2018 purchase of GitHub for $7.5 billion, $2.5 billion is still nothing to sniff at, and underscored the increasing value the big open source players hold in the market (along with their communities).

Where next?

Although SUSE staffers would no doubt reel at the thought of yet another change of ownership, a rumoured bidding war where the cash-flush EQT group came out on top suggests that there were other very interested parties.

One enterprise that has been flexing its M&A muscles of late is SAP, picking up Utah-based software maker Qualtrics recently for a cool $8 billion. At first glance, it might be tempting to think of SUSE as a fit for SAP, perhaps once the company has had a few more years to prove its worth as an independent vendor.

Of all SAP applications running on Linux, 70 percent of them are on SUSE Linux Enterprise, and that counts for over 90 percent of SAP HANA deployments. Indeed, SUSE boasts that it had "created and led" the mainframe Linux market for over 17 years.

As E3 Zine suggests, IBM's decision to acquire Red Hat leads to some potentially interesting complications for SAP customers - such as customers that will have to opt for both HANA and IBM Power but with Red Hat Linux. SAP's options are choosing to "bury its head in the sand" or to acquire SUSE. The magazine suggests Microsoft is another potential candidate, although the Redmond company for now is still standing with Red Hat.

Read next: What SAP's $8 billion acquisition of Utah-based SaaS company Qualtrics means

That being said, SAP's current M&A strategy appears to focus more on SaaS companies.

Holger Mueller, principal analyst at Constellation Research, says a SAP-SUSE acquisition might have made sense a few years back when SAP had ambitions to run its own cloud data centre.

"They are out of that business and using IaaS vendors for that," says Mueller. "AWS, Google, Microsoft are the focus, so for the key SUSE value proposition, it does not make sense."

Mueller added that the SUSE valuation could have been inflated thanks to the Red Hat-IBM deal.

"IBM did not buy Red Hat for Linux, but then IBM has a very different ambition to go to market - hybrid cloud, and services - versus SAP, with SaaS," he says. "SAP HANA standalone relies on partner sales and while SAP supports SUSE, they support other Linux distros and operating systems as well. SAP wants and needs to be portable to achieve market success."

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