Micro Focus Lender Presentation - Private & confidential
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Private & confidential Micro Focus Lender Presentation April 2017
Disclaimer
This presentation has been prepared solely to provide a basis for potential providers of finance to consider whether to assist Micro Focus International PLC (“Micro Focus”) and the software business segment of
Hewlett Packard Enterprise Company and their respective subsidiaries (each a “Company” and together, the “Companies”) with their evaluation of raising new debt facilities in connection with a potential
transaction, or a series of potential transactions, involving the Companies (the “Transaction”). The existence of this presentation, the information contained within it and any information otherwise made available,
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2Today’s Presenters
• Kevin Loosemore
• Executive Chairman
• Mike Phillips
• Chief Financial Officer
3Agenda • Transaction Overview • Micro Focus Philosophy • Key Credit Highlights • Syndication Overview • Q&A • Appendix 4
Transaction Overview
Transaction Overview
Micro Focus Combination with HPE Software
• On 7 September 2016 Micro Focus International plc (“Micro Focus”) entered into a merger agreement (the “Merger or “Transaction”)
to combine with the software business segment (“HPE Software”) of Hewlett Packard Enterprise Company (“HPE”)
Transaction • The Transaction is structured as a Reverse Morris Trust (“RMT”)
• The Transaction implies a current enterprise value for HPE Software of $8.6bn, an effective multiple of 11.7x1 As-Acquired
Underlying Adjusted EBITDA2 of $741m for the twelve months to 31 October 2016
• Consideration to HPE shareholders in the Merger comprises the issuance of US$6.1bn3 of Micro Focus shares representing 50.1% of
the fully diluted issued share capital4 of the combined group (the “Enlarged Group”) on completion of the Merger (“Completion”)
– Micro Focus shareholders will own 49.9% of the fully diluted share capital of the Enlarged Group following Completion, with HPE
shareholders owning the remaining 50.1%4
Consideration
• In addition, prior to Completion, Seattle SpinCo, Inc. will make a cash payment of US$2.5bn (subject to certain adjustments in limited
and Sources of
circumstances) to HPE which will be financed through newly incurred indebtedness of Seattle SpinCo, Inc.
Financing
• The proceeds from the $5.0bn Term Loans will be used to fund the cash payment by Seattle SpinCo, Inc. to HPE, a Return of Value
(“RoV”) to Micro Focus existing shareholders of no more than $500m, refinance existing facilities and transaction costs. The balance
will be used for general corporate and working capital purposes
– Pro forma for the Transaction and at Completion, net debt to Facility EBITDA multiple will be approximately 3.3x
• Approval by Micro Focus shareholders required, with shareholder vote expected late May 2017
Approval • Approval by HPE shareholders not required
Process • Completion is subject amongst other things to regulatory clearances, SEC filings and receipt of certain tax opinions
• Completion target of 1 September 2017
Other • Merger integration plan in place
Considerations • Micro Focus will run a long period of 18 months to October 2018 as part of changing its financial year end date from the end of April to
the end of October
Note: HPE Software financials prepared under US GAAP, Micro Focus financials prepared under IFRS;
1 Multiple calculated based on Enterprise Value of $8.6bn, accounting for assumed $500m RoV to existing Micro Focus shareholders prior to Completion, divided by HPE Software’s LTM 31-Oct-16 As-Acquired Underlying Adjusted
EBITDA of $741m;
2 As-Acquired Underlying Adjusted EBITDA excludes overhead costs of c.$92m that are expected to not transfer to Micro Focus as part of the Transaction; Underlying Adjusted EBITDA removes the impact of net
capitalisation/amortisation of development costs and foreign currency gains/losses from Adjusted EBITDA; Adjusted EBITDA is Adjusted Operating Profit before depreciation and amortisation; Adjusted Operating Profit and Adjusted
Operating Costs being the relevant statutory measures, prior to exceptional items, amortisation of purchased intangibles and share based compensation; 3 US$6.1bn issuance of Micro Focus shares is based on 50.1% of the fully diluted
share count of the Enlarged Group as at 29-Mar-17, adjusted for an assumed RoV to Micro Focus existing shareholders prior to Completion of US$500m in cash. The RoV is expected to be implemented by way of a B Share Scheme
and a subsequent share consolidation; 4 Calculated using the Treasury Share Method and excluding any Micro Focus shares to be issued pursuant to a de minimis number of replacement awards to be granted to HPE Software
employees at Completion under their existing employee incentive arrangements
6Transaction Rationale
• Continues successful strategy of buying companies or assets that fit Micro Focus’ business profile:
› Infrastructure software; and
› “Sticky” assets
• Proven track record of delivering value from operational improvements
Deal Consistent with
Strategy › Total shareholder returns of >700% since 25 March 2011; Top 5 performing stock in the FTSE 3501
› Third “reverse takeover” since 2009
• Continued commitment to conservative financial policy, with a leverage target of 2.5x Facility EBITDA2 within two years
following Completion; Micro Focus do not intend, outside of regular dividend payments, to consider further RoVs or buybacks
until the 2.5x Facility EBITDA2 target leverage is achieved
• Create significantly greater scale and breadth of product portfolio covering largely adjacent areas of the software
infrastructure market
Extension Opportunity
• Expected to become a global leader in infrastructure software by revenue and the seventh largest software business overall
• Add substantial recurring revenue base to existing portfolio, together with accessing new growth drivers and revenue models
• Accelerate operational effectiveness over the medium term, through alignment of best practices in areas such as product
Significant Efficiency development, support, product management, account management and sales force productivity
Opportunities • Address areas of revenue decline and accelerate revenue growth where achievable, while enhancing operating margins
Available
• Micro Focus believes it will be possible to improve the margin delivered by HPE Software's mature software assets
(approximately 80% of HPE Software revenue) to Micro Focus' level3 of c.46% by April 2021
Source: Company,announcements and presentations;
Note: HPE Software financials prepared under US GAAP, Micro Focus financials prepared under IFRS; 1 25-Mar-11 represents business day immediately prior to commencement of Micro Focus’ share buyback programme; Excludes
companies not listed over entire period from 25-Mar-11 – 29-Mar-17; 2 “Facility EBITDA” is Adjusted EBITDA before Amortisation and impairment of capitalised development costs; 3 Twelve months to 30-Apr-16, excluding the SUSE division of
Micro Focus
7The Combined Company Will Produce Revenues
in Excess of $4.5bn…
Micro Focus Revenue HPE Software Revenue
Combined Revenues1
(FYE April) (FYE October)
Licence Maintenance Professional Services SaaS Licence Maintenance
Subscriptions Consulting Maintenance Licence Subscription Consulting
$4,581 $4,536
$3,188 $3,172 464 454
$3,126
399 526 569
403 396
265 277 294
$1,500
$1,408 $1,410
2,358 2,324
67 60 58 1,628 1,596 1,583
216
249 275
849 763 741
896 896 853 1,232 1,189
367 336 335
Apr-15 Apr-16 LTM Oct-16 Oct-15 LTM Apr-16 Oct-16 Apr-16 LTM Oct-16
• Pro forma basis, unadjusted for currency • As-Acquired basis (i.e. adjusted for a number of
divestments at various points during the last two
• FYE 30-April fiscal years and the transfer of the Marketing
Optimisation Business Unit (“MOBU”) in the fourth
quarter of FYE 2015), unadjusted for currency
• FYE 31-October
Source: Company filings, announcements and presentations
1 Pro forma numbers for Apr-16 and LTM Oct-16 periods calculated as sum of standalone respective periods for Micro Focus and HPE Software
8…With a Diversified and Complementary Product Set…
IAS CDMS Host Con. Dev & ITOM C&N SUSE
~140 Product 80% mature Identity manager COBOL Rumba Silk GroupWise Linux & Open
Source
Lines 20% growth Sentinel Enterprise Reflection AccuRev CORBA
~310 product 80% mature • Minimal product overlap
lines 20% growth • Broadest portfolio of infrastructure solutions in the industry
ITOM AT&DM SIG Big Data
~170 product 80% mature APM
OpsBridge ArcSight IDOL
lines 20% growth
UFT LR Fortify Vertica
Hybrid Cloud ALM
AppPulse Voltage
Management
Software
Note: IAS = Identity Access and Security, CDMS = COBOL Development & Mainframe Solutions, C&N = Collaboration and Networking Solutions, ITOM = IT Operations Management; AT&DM = Applications Testing & Delivery
Management; SIG = Security & Information Governance; Big Data = Big Data Platform Analytics
9…and Considerable Scope to Improve Profitability
Micro Focus Pro Forma UAEBITDA HPE Software Pro Forma UAEBITDA Pro forma Underlying Adjusted
(FYE April) (FYE October) EBITDA1
39.5% 43.5% 45.0% 24.8% 23.7% 23.7% 29.8% 30.3%
Horizontal costs expected to not transfer
UAEBITDA
789 752 741
123 102 92 1,365 1,375
613 634 666 650 649
592
Apr-15 Apr-16 LTM Oct-16 1 Oct-15 LTM Apr-16 Oct-16 Apr-16 LTM Oct-16
• Pro forma basis, unadjusted for currency • As-Acquired basis (i.e. adjusted for a number of
divestments at various points during the last two
• FYE 30-April fiscal years and the transfer of the Marketing
Optimisation Business Unit (“MOBU”) in the fourth
quarter of FYE 2015), unadjusted for currency
• FYE 31-October
x.x% Margin (%)
Source: Company filings, announcements and presentations
1 Pro forma numbers for Apr-16 and LTM Oct-16 periods calculated as sum of standalone respective periods for Micro Focus and HPE Software
10Micro Focus Philosophy
We Are a Software Company
We make software, we sell software and we support software
Everything is organised to help us do this:
• Our systems
• The way we interact with customers and
partners
• How we deliver consulting services
• We are building the company with sustainable
prospects for the ‘long’ term
• We have a relentless focus on delivering
sustainably high free cash flow
12IT has been an Evolutionary Journey Resulting in Great
Complexity - All in the Last 40 Years!
Internet
of
Public
Cloud Private Things
Cloud
(IoT)
z / OS
PL / I
COBOL
CICS
IMS
13Portfolio Positioning and Approach
Product lifecycle
Micro Focus area of primary focus –
Customer Focused Innovation
Potential change in
trajectory (return to growth)
Reduce rates of
“Me too” models
decline
New tech models
Introduction Growth Maturity Decline
Nature of software Nature of software
• Innovative and often disruptive technologies • Infrastructure software: embedded products with high switching costs
• High capex and R&D • Limited growth capex
• User base rapidly expanding, products repeatedly enhanced • Margin expansion and efficiency opportunities
Investment strategy and valuation Investment strategy and valuation
• Investing in growth = valuation and returns • Returns driven by maximising cash flow
• Rich valuations • Lower valuations
Micro Focus is a software company focusing on operational efficiency and
scale to lead consolidation in the mature infrastructure software market
14Example of How Micro Focus Extends the Life of a Product
Through Customer Focused Innovation
Visual COBOL case study
COBOL has been delivering strategic advantages for decades…
• COBOL powers ~85% of all daily business transactions
Heritage:
• COBOL supports 90% of Fortune 500 companies
240bn Portable:
lines of code 500 Platforms
and rising
• 240+ billion lines of COBOL code today, and growing (77% of total)
• 95% of all ATM transactions use COBOL
Future Proofed:
Over $1.5bn annual
investment by customer • 200x more COBOL transactions than Google and YouTube searches
Fit for purpose: Easy to read:
4 times cheaper to Cross-train
maintain than Java in hours
…Visual COBOL enables businesses to continue to re-use
…with business facing increasing challenges… and extend life of existing code
• Increasing demand from users for applications which: • Visual COBOL provides IT organisations with the ability to create new
– Are easy to use customer value from existing application investments
– Have flexibility to be integrated with other business systems • Removes the risk associated with re-write or replacement strategies
• IT organisations being asked to: which expose the business to uncertain cost and extended delivery
– Deliver modern user interfaces and integrate multiple business time frames
systems • Allows organisations to quickly respond to new business
– Whilst striving to reduce operational costs and risk by requirements and modern IT user needs with predictable and highly
standardizing on common platforms cost-effective results
• To deliver new innovation may have meant re-writing business • Customer-focused development of Visual COBOL has enabled
applications in new languages Micro Focus to extend COBOL lifecycle
15Portfolio Positioning and Approach
Industry comparison
Mix of revenue and Focused R&D Evidence of High EBITDA-Capex Recurring
mature assets investment operational efficiency conversion revenue stream
Revenue growth3 (%) R&D4 (% Sales) EBITDA5 margin (% Sales) EBITDA-Capex6 (% EBITDA) Recurring revenue7 (%)
Micro Focus (1%) 45% 72%
Group
Micro Focus (5%) 14% 48% 98% 66%
Product Portfolio
SUSE 23% 32% 98%
Product Portfolio
Selected Mature 3% 13% 37% 94% 69%
Software1
Selected High- 21% 13% 25% 80% 100%
Growth Software2
Source: Company filings, announcements and presentations
Note: Peer financials based on latest full financial year per public filings; Selected Mature Software and Selected High-Growth Software sectors show median data points; Micro Focus financials based on the twelve months to 31-Oct-16;
1 Selected Mature Software peers include CA Inc, Progress Software, Citrix, Software AG, OpenText;
2 Selected High-Growth Software peers include Callidus Software, Fortinet, GoDaddy, Inovalon, LogMeIn, Match Group and Red Hat;
3 Respective revenue growth rates adjusted for impact of currency and acquisitions;
4 Micro Focus R&D costs pre-exceptionals, SBC and amortisation of acquired intangibles; Peers adjusted for SBC, exceptionals and amortisation of acquired intangibles;
5 Margins for Micro Focus and its corresponding Product Portfolios based on Underlying Adjusted EBITDA and adjusted for impact of currency and acquisitions
6 Micro Focus – Underlying Adjusted EBITDA basis; All peers based on adjusted EBITDA metrics
7 Recurring revenue defined as aggregate of Maintenance and Subscription revenues
16Micro Focus Acquired A Highly Valuable Portfolio of
Assets…All of Whom Lost Value Chasing Revenue Growth
Micro Focus
Compuware ASQ Borland Software Attachmate Serena HPE Software
2009 @ $80m 2009 @ $113m 2014 @ $2.35bn 2016 @ $540m 2017 @ $8.6bn
Visigenic Software TogetherSoft Segue Software NetIQ Novell
2009 @ $80m 2002 @ $185m 2006 @ $100m 2006 @ $495m 2010 @ $2.2bn
UNIX SYSTEM WordPerfect Cambridge Silverstream SUSE Linux e-Security PlateSpin
LABORITORIES Technology Partners Software
1992 @ $322m 1994 @ $1.4bn 2001 @ $266m 2002 @ $212m 2003 @ $210m 1994 @ $1.4bn 1994 @ $1.4bn
Bluestone StorageApp Peregrine Mercury Opsware Tower Software ArcSight Vertica Autonomy
Software Engineering
2001 @ $350m 2005 @ $425m 2006 @ $4.5bn 2007 @ $1.6bn 2010 @ $1.5bn 2011 @ $350m 2011 @ $11bn
2000 @ $468m 2008 @ $109m
Freshwater Kintana Systinet iConclude
Software 2003 @ $225m 2006 @ $105m 2007 @ $57m
2001 @ $147m
Verity e-Talk Zantaz Interwoven Microlink Iron Mountain
2005 @ $500m 2005 @ $72m 2007 @ $375m 2009 @ $775m 2010 @ $55m 2011 @ $380m
Innovative Tech Tivoli’s Service Telco Research Remedy Metacode iManage Optimost
Systems Desk Technologies
2000 @ $105m 2000 @ $105m 2001 @ $1.08bn 2003 @ $171m 2007 @ $52m
1998 @ $77m 2003 @ $210m
Source: Equity research. Blue box denotes a key acquisition, dashed line denotes a subsequently-disposed-of business
17Key Credit Highlights
Key Credit Highlights 12 Significant scale in infrastructure software 22 Portfolio and Model driving visibility and stability of earnings 32 Proven history of predictable performance 42 Strong track record of acquisitions 52 Significant potential for operational efficiencies 62 History of sustained cash flow generation 72 Management team with a strong M&A track record 19
12
Combination Creates a Global Leader in Software…
$95.3
$37.3
$24.2
$8.7
#7
$6.3
$5.0
$4.5
$4.0 #23
$3.4 $3.3
$3.1
$2.8 $2.7
$2.5
$2.2 $2.1 $2.0 $2.0 $2.0 $1.9 $1.8 $1.8 $1.6
$1.4
CA Inc
Oracle
SAP
Gemalto
Red Hat
Nuance Communications
Open Text
Microsoft
Micro Focus + HPE
DassaultSystemes
Salesforce
HPE Software
Citrix
Asseco
Cadence Design Systems
Adobe
Synopsys
AutoDesk
Symantec
Constellation Software
CDK Global
Check Point Software
Workday
Micro Focus
Software
20 Source: FactSet, Micro Focus and HPE Software company filings.; LTM as of Mar-2017; HPE Software and Micro Focus LTM revenues as at 31 October 201612 …Broadening the Blue Chip Customer Base and
Increasing Penetration Within Existing Customers
• 20,000+ customers including 91 of Fortune 100 • 30,000+ HPE Software customers with 98 of the
companies Fortune 100 run on HPE Software products
• Top 20 customers make up only ~10% of total • Top 20 customers make up only ~14% of total
revenues revenues1
Micro Focus HPE Software
TMT
Financial
services
Industrials
Consumer
Retail
Healthcare
21 1 LTM revenues to 31 October 2016 excluding revenues with HPE’s Enterprise Services Group.22 Highly Diversified Revenue Streams…
Micro Focus (LTM Oct-16A) HPE Software (FYE Oct-16A) Pro Forma (LTM Oct-16A)
APAC & Japan APAC & Japan APAC & Japan
$136m $358m
10% 11% 11%
North America
North America
$1,688m North America
$735m
52% 53% 53%
38% 36% 37%
International
Geography
International International
$1,149m
$539m
Dev. and Big Data Big Data 4% C&N 3%
ITOM CDMS 5%
20% Host Con. 4%
22%
ITOM
IAS 5%
33%
ITOM
38% SUSE 6%
SIG
33%
C&N CDMS 6%
10% SUSE
20%
Business
Host con. SIG 23% AT&DM 16%
13% IAS AT&DM
15% 24%
Source: Company presentations, filings and announcements
Note: Financials shown for the twelve months ended Oct-16; Micro Focus revenue breakdown adjusted for impact of currency and acquisitions; HPE Software revenue split by geography on As-
Managed basis and shown under Micro Focus split of regions (FY Oct-16 revenue of $3,195m), HPE Software revenue split by product on As-Acquired basis, excluding $4m of unallocated revenue
(FY Oct-16 revenue of $3,126m); Support = Maintenance; SaaS = Subscriptions; Professional services = Consultancy; ITOM = IT Operations Management; AT&DM = Applications Testing & Delivery
Management; SIG = Security & Information Governance; Big Data = Big Data Platform Analytics
2222 …and Sticky Revenue Streams Driving Visibility and
Stability of Earnings Base
Micro Focus HPE Software
Recurring revenue (LTM Oct-16A) Recurring revenue (FY Oct-16A)
Consultancy Total revenue: $1.4bn Consulting Total revenue: $3.1bn
4% 13%
Licence
24%
Maintenance Licence Maintenance
53% 27% 51%
Subscription Subscription
19% 72% recurring revenues 9% 60% recurring revenues
Pro forma
Recurring revenue (LTM Oct-16A)
Consulting
Total revenue: $4.5bn
10%
Licence
26% Maintenance
51%
Subscription
13% 64% recurring revenues
Breadth of product portfolio and revenue sources means that idiosyncratic risks are diversified away, providing highly predictable results
at the group level
Source: Company presentations, filings and announcements
Note: Recurring revenue consists of Maintenance and Subscriptions (Micro Focus) or Support and SaaS (HPE Software); Micro Focus revenue breakdown adjusted for impact of currency and acquisitions
HPE Software revenue breakdown on an As-Acquired basis
2332 Micro Focus Has Continually Delivered on Guidance
Historical Full Year Guidance FY2012-FY2017
Year Guidance at FY results Hit/Miss Guidance at Interim results Hit/Miss
• Guidance on target margin for underlying adjusted EBITDA of
FY 2012 • Overall sales expected to decline 37% to 42%
• Overall revenue growth expected to be in the range of +1% to
(3)% on a constant currency basis for the full year
• Overall revenues expected to be in the range of (2)% to (4)% on
FY 2013 a CCY basis for the full year
• Underlying adjusted EBITDA margin guidance remained at
previous range of 37% to 42% • Underlying adjusted EBITDA target margin range of 40% to 45%
• Full year revenue guidance of 3% to 6% on a constant currency
basis
• Revenue guidance of 0% to 5% growth on a constant currency
FY 2014
basis
• Underlying Adjusted EBITDA expected to be in line with current
market expectations
• Provided guidance of combined pro-forma full year revenues of
FY 2015 • Low single digit revenue growth expected in the medium term On Track c. $1,330 million and combined pro-forma full year underlying
adjusted EBITDA of c. $500 million post Attachmate acquisition
• Anticipated revenues in the year declining between 2% and 4% • Full year revenue guidance of (2)% to (4)% on a pro forma
FY 2016
on a constant currency basis constant currency basis post Serena acquisition
• Revenue guidance of (2)% to 0%, providing base for modest
FY 2017 • (2)% to 0% revenue growth pro forma, constant currency On Track On Track
growth in FY18
Source: Company filings, announcements and presentations
2442 A Strong Track Record of Acquiring Businesses…
Commentary
• Micro Focus has been operating for 40 years and has a strong track record of acquisitions
• Since 2009, the company has undertaken two reverse takeover transactions (Borland and the Attachmate Group)
• In both instances Micro Focus has been able to expand margins to in excess of 40% within a short period of time and rapidly de-lever
• Micro Focus also has significant backing from equity investors regarding its ability to execute on smaller bolt-on acquisitions as evidenced by the multiple re-rating it has seen on
announcements
24 Dec 2012 – Acquisition of 29 Nov 2013 – Micro Focus 10 Dec 2013 – Acquisition 17 Jul 2015 – Acquisition of 04 Oct 2016 – Acquisition of
Progress Software for $15m in acquires AccuRev for $17m in of certain assets from Authasas for c.€9m GWAVA
cash cash PrismTech
2009 2010 2011 2012 2013 2014 2015 2016
Announced: 06 May 2009 Announced: 15 Sep 2014 Announced: 22 Mar 2016
Summary Summary Summary
Size ($m) 113 Size ($m) 2,350 Size ($m) 540
Funding Reverse takeover under Listing Rules. Funding Acquired TAG for $1.5bn in stock Funding Acquired in cash for $288m with $252m
Cash consideration financed from from a consortium of private equity in assumed liabilities. Funded through a
funds drawn down under loan facility investors. Refinanced debt using mix of debt, existing cash and an equity
agreement up to a total of $108m newly agreed loan facility placing (c.£158m)
PF FY08 FY10 PF FY14 FY16 Summary
Combined Combined Serena transaction multiple (FY1) 7.4x
Revenue 427 433 Revenue 1,390 1,245 Micro Focus transaction multiple (FY1) 10.6x
EBITDA 1 78 173 EBITDA 2 509 533 Blended multiple at announcement 10.2x
% margin 18.2% 40.1% % margin 36.6% 42.8%
Blended multiple at transaction close 10.7x
Source: FactSet, Company filings, announcements and presentations
Note: Pro forma financials for Borland calendarised to April FYE, pro forma financials for Attachmate as reported per Micro Focus merger announcement; FY16 financials not adjusted for Serena
1 Micro Focus EBITDA adjusted for SBC, amortisation of purchased intangibles and exceptional items
2 Micro Focus EBITDA reported on an underlying, adjusted basis
2542 …Driving Operational Improvements Across the Portfolio
Net operational improvement accounts for ~34% of Micro Focus’s EBITDA growth over last 10 years
Micro Focus EBITDA evolution ($m)
80 613
~34% of ~$490M total 166
EBITDA growth driven by real 532
net operational improvement
313
19 (11) 8 (2)
39 3 (2)
'06 EBITDA Acucorp ('07) NetManage Compuware Borland ('09) Orbix assets Accurev ('13) TAG ('14) Op Apr-16 EBITDA Serena ('16) Apr-16 EBITDA
('08) ('09) from Progresss improvement (PF Serena)
SW ('12)
Source: Company filings, announcements and presentations
Note: Does not include acquisitions smaller than $10M: Authasas (’15), Openfusion (’13), Soforte (’13), Relativity (’09) and Liant (’08); Gwava (’16) Serena
Values for Borland, NetManage, Acucorp and Accurev are operating profit, not EBITDA acquisition
closed 2 May
2016
2652 Significant Scope For Operational Improvements and Cost
Savings
Micro Focus vs HPE Software UAEBITDA margins (Apr-16A) Commentary
• Micro Focus believes it is possible to improve the margin delivered by
46%
43%
HPE Software's mature software assets to Micro Focus’ level by Apr-
2021
21%
• In conjunction with achieving the above, Micro Focus expects to incur
certain costs throughout the same time period
• Historically Micro Focus has achieved operational efficiencies with
HPE Software Micro Focus Micro Focus
(Product Port.) (Group) integration costs equivalent to c.70% of the total annual savings; and
in addition up to $150m of costs to be incurred to implement certain
Operational improvements potential ($m)
IT system upgrades and migrate the Enlarged Group onto a single
$m Apr-16A system
“As-Acquired” HPE Software revenue 3,172
• Operational efficiencies expected to be achieved throughout SG&A,
Revenue that is considered mature (c.80%) 2,538 COGS and R&D cost segments with headcount representing one of
Micro Focus Product Portfolio UAEBITDA (Apr-16A) 46% such opportunities, as evidenced by Revenue / Headcount of $273k2
HPE Software UAEBITDA margin (%)¹ 21% at Micro Focus vs $185k2 at HPE Software
Margin improvement potential on HPES mature assets(%) 25%
Source: Company filings, announcements and presentations 1
1 As-Acquired Underlying Adjusted EBITDA for the twelve months to 30-Apr-16 including horizontal costs of $102m expected to not transfer as part of the Transaction
2 HPE Software’s total headcount comprises all full time employees, contractors, a headcount transfer from the HPE Global Marketing Team and estimates for staff transferring from central corporate functions. Micro
Focus total number of employees comprises the Full Time Equivalent (“FTE”) of both permanent and temporary staff as well as estimates for revenue generating contractors
2752 Example of Efficiencies Generated Across Headcount
Locations Historically
Pro Forma Average Number of Employees for FY Apr-14 Number of Employees as at Oct-16
• Net reduction in Micro Focus of 642 (15%)
• Net increase in SUSE of 306 (65%)
477
4,177
3,535
470 776
SUSE Micro Focus SUSE Micro Focus
SUSE Micro Focus SUSE Micro Focus Serena + Gwava
• 147 locations in November 2014 • 97 locations in November 2016
• ~120 Product Lines • ~140 Product Lines
– 12-24 month release cadence (TAG) – 6-12 month release cadence (TAG)
– OEM dependencies in key products – Customer driven innovation
– OEM dependencies removed
2862 History of Sustained Cash Flow Generation
Micro Focus – Cash Conversion (%) HPE Software – Cash Conversion (%)
125% Average: 94%
Average: 102%
108% 111%
88% 90% 90%
68%
Apr-14 Apr-15 Apr-16 LTM Oct-16 Oct-2014 Oct-2015 Oct-2016
Micro Focus - Net Debt / Facility EBITDA Progression Pro Forma – Cash Conversion (%)
3.4x
2.7x 90%
1
2.0x
PF FY14 PF FY15 FY16 LTM Oct-16
Source: Company filings, announcements and presentations
Note: Conversion rate defined as Cash generated from operations divided by EBITDA post exceptionals; Micro Focus conversion rates on a reported basis, not historically adjusted for impact of acquisitions and currency; HPE Software on an
As-Acquired basis; Micro Focus cash conversion for FY Apr-14 and FY Apr-15 not historically adjusted to include ‘provision utilisation’ within changes in working capital
1 Not adjusted for impact of Serena acquisition;
2962 Historical Free Cash Flow Generation
Combined Free Cash Flow Generation ($m)
Micro Focus HPE Software Pro Forma Commentary
Licence 335 853 1,189
Maintenance 741 1,583 2,324
Consultancy 58 396 454
Subscription 275 294 569
Revenue $1,410 $3,126 $4,536
Underlying Adjusted EBITDA $634 $7411 $1,375 Assumes no operational efficiencies
LTM Oct-16, pro forma and LTM Oct-16, “As acquired” basis,
Note (source, basis)
constant currency, IFRS basis US GAAP basis
Micro Focus HPE Software Pro Forma Commentary
Historic average change in NWC of 4% of
Less: Change in NWC (91) (84) (175)
revenue for the enlarged group
Historic limited capex needs as
Less: Capex (46) (28)2 (74)
customary for software
Unlevered free cash flow $1,126
LTM Oct-16 reported3, LTM Oct-16 “As reported” basis,
Note (source, basis)
IFRS basis US GAAP basis
Source: Company announcements and presentations
1 Underlying Adjusted EBITDA consists of $649m of Underlying Adjusted EBITDA , further adjusted for $92m of horizontal costs expected to not transfer as part of the Transaction
2 Capital expenditure figure based on US GAAP Carve out accounting, for reference depreciation & amortisation for FY Oct-16 was $68m, excluding amortisation of intangibles of $153m
3 Reported basis excludes the impact of acquisitions and currency
3062 History of Disciplined Financial Practices and Uses of Cash
Strong liquidity • Incremental $200m of cash to balance sheet and $500m revolving credit facility
position • Balanced maturity profile with no significant upcoming maturities
• Estimated pro forma net leverage of c.3.3x Facility EBITDA at Completion of the Transaction, in line with leverage at the
Conservative time of TAG acquisition executed in 2014
leverage
• Moody’s and S&P have confirmed current ratings at B1/BB- and stable outlook
• Continued commitment to target a net reported leverage of 2.5x Facility EBITDA: leverage to return below 2.5x within two
years following Completion supported by EBITDA growth and strong free cash flow
Rapid deleveraging
• Voluntary Term Loan B repayment of $150m made in March 2015 due to conservative approach to cash generation and
strong cash generation capability
• Micro Focus intends to continue its stated dividend policy post the Transaction of distributions that are equal to
approximately half of adjusted net income
• Following Completion the Company does not intend, outside of normal dividends, to consider further ROVs or buyback
Capital allocation programmes until the target of 2.5x Facility EBITDA target leverage has been achieved
• Micro Focus management has a proven track record in execution of M&A transactions and delivering on subsequent
integration processes and will continue to evaluate opportunities to drive growth and expand capabilities
3172 Management Team With a Strong M&A Track Record
Micro Focus Management Team post Completion
Name Role Experience
Kevin Loosemore Executive Chairman • Appointed non-executive Chairman of the Company in 2005
(11 years) • Appointed Executive Chairman in April 2011
• Previously non-executive Chairman of Morse plc
• Previously, Kevin has acted as Chief Operating Officer of Cable & Wireless plc, President of Motorola
EMEA. Prior to this he was Chief Executive of IBM UK Limited
Mike Phillips CFO (6 years) • Joined Micro Focus in September 2010
• Chief Executive Officer at Morse plc, following his initial role as Group Finance Director
• Left Morse plc in July 2010 following the turnaround and successful corporate sale to 2e2 in June 2010
Chris Hsu Executive VP, General • Joined HP in 2014 as Senior Vice President of Organisational Performance to drive operational
Manager, HPE performance initiatives across the company. He also led the separation of HP into two companies
Software & Chief • Previously, was a Managing Director at the private equity firm Kohlberg Kravis Roberts (KKR). Drove
Operating Officer, HPE operational performance in KKR’s portfolio companies, supported operational diligence during the deal
(joined in 2014) process and provided overall leadership to the KKR Capstone team
• Incoming CEO of the Enlarged Group following Completion
Stephen Murdoch CEO, Micro Focus • Has held senior executive positions in general management, sales, and strategy with IBM and Dell
division (4 years) • Most recently, he was the General Manager of EMEA for Dell's Public Sector and Large Commercial
Enterprise business unit
Nils Brauckmann CEO, SUSE (5 years) • Previously served in cross-functional and international management positions at WRQ (acquired by
TAG in 2004), Novell and Siemens Nixdorf, where he started his technology career
Source: Publicly available information, Company websites, BoardEx
3272 A Phased Approach to Delivery for HPE Software and
Setting Market Expectations
FY17 FY18 FY19 FY20
Phase IV: Growth
• Top line growth
Actions
Phase III: Stabilisation
• Click and repeat!
Phase II: Integration • Stabilise top line
• Improve GTM
Actions
• Standardise systems productivity
Phase I: Assessment • Growth from new areas
• Rationalise properties
• Rationalise legal entities • Improved profitability
• Deliver plans for FY17 • Standardise systems
Actions
• New Go to Market (GTM)
• Detailed review of model
Actions
combined • Maintain/improve cash
businesses conversion
• Invigorate product • Rationalise
management underperforming
elements
• New market initiatives
33Syndication Overview
Overview of Financing Structure
• Merger consideration will be funded through the issuance of c. $6.1bn1 of equity to HPE shareholders
• Debt financing includes $500m Revolving Credit Facility and $5.0bn Term Loans
• The Enlarged Micro Focus group expects net leverage of c.3.4x based on Oct-16 LTM Underlying Adj. EBITDA of $1,375m
‒ Consistent with Micro Focus leverage at the TAG transaction and overall financial policy
• The $5.0bn Term Loans consist of:
‒ Amendment & Repricing (A&R) of $1,515m existing Micro Focus Term Loans:
• $412m TLC due Nov-19 and $1,103m TLB-2 due Nov-21
• A&R is not conditional upon the Completion and will be effective immediately
‒ New $3,485m equivalent aggregate amount of Term Loans B’s maturing 7 years from funding
• Conditional upon Completion2 with proceeds placed into escrow subject to Completion
• The debt will be issued out of 2 separate borrowing entities
‒ $2.6bn will be incurred by Seattle SpinCo, Inc. and $2.4bn will be incurred by a subsidiary of Micro Focus
‒ Separate credit agreements are structured to be completely pari passu due to cross guarantees and identical collateral package
following Completion
• Corporate and facility rating of B1/BB-
• Completion of the transaction is expected on 1 September 2017
1 US$6.1bn issuance of Micro Focus shares is based on 50.1% of the fully diluted share count of the Enlarged Group, adjusted for an assumed RoV to Micro Focus existing shareholders prior to Completion of
US$500m in cash. The RoV is expected to be implemented by way of a B Share Scheme and a subsequent share consolidation
2 Subject to certain exceptions referred in the full form documentation
35Sources and Uses and Pro Forma Capitalisation
Sources and Uses
Sources ($m) Uses ($m)
Equity issued to HPE shareholders 6,1471 Equity issued to HPE shareholders 6,1471
A&R of existing Term Loans (B-2 & C) 1,515 Cash payment to HPE by Seattle SpinCo, Inc. 2,500
New Term Loans B’s ($/€) 3,485 A&R of existing Term Loans (B-2 & C) 1,515
Est. RoV to Micro Focus shareholders 500
Est. transaction and financing costs 285
Incremental cash to balance sheet 200
Total Sources 11,147 Total Uses 11,147
Pro Forma Capitalisation
x Oct-16A Current margin bps, Expected pricing
$m Maturity
UAEBITDA3 floor % bps, floor %
Cash (323)2 (0.3x)
RCF (PF $500m) - - 5 years (2022) L+350, 0.75% L+350, 0%
Existing TLC (MA Finance Co, $) 412 Nov-19 L+375, 0.75% L+225, 0%
Existing TLB-2 (MA Finance Co, $) 1,103 Nov-21 L+375, 0.75% L+250, 0%
New TLB (MA Finance Co, $) 7 years (2024) -
885 ($/€) L/E+300-325, 0%
New TLB (MA Finance Co, €) 3,485 7 years (2024) -
New TLB (Seattle Spinco, $) 2,600 7 years (2024) - L+300-325, 0%
Gross 1st Lien and total debt 5,000 3.6x
Net total debt 4,677 3.4x
Micro Focus market cap1 (49.9%) 6,123
HPE shareholders equity stake1 (50.1%) 6,147
Pro forma equity value 12,270
Enterprise value 16,947 12.3x
Micro Focus UAEBITDA 634
HPES UAEBITDA 741
Pro forma LTM UAEBITDA 1,375
Source: Company announcements and presentations
1 US$6.1bn issuance of Micro Focus shares is based on 50.1% of the fully diluted share count of the Enlarged Group as at 29-Mar-17, adjusted for an assumed RoV to Micro Focus existing shareholders
prior to Completion of US$500m in cash. The RoV is expected to be implemented by way of a B Share Scheme and a subsequent share consolidation; 2 Based on reported Micro Focus cash $123m as of
Oct-16 and incremental cash to balance sheet of $200m; 3 Micro Focus LTM Oct-16 UAEBITDA of $634m (PF, constant currency), HPE Software Underlying Adjusted EBITDA of $741m, further adjusted for
horizontal costs of $92m that are expected to not transfer to as part of Transaction
36Pro Forma Organisational Structure
Micro Focus HPE
Shareholders Shareholders
49.9%1 50.1%1
$2.6bn Micro Focus International $2.4bn
drawn debt plc U.K. drawn debt
Tranches ($m) Tranches ($m)
New TLB ($) 2,600 RCF ($500m) -
Seattle SpinCo, MA Finance Co, Existing TLC (A&R) 412
Inc US LLC US Existing TLB-2 (A&R) 1,103
(Borrower) (Borrower) New TLB (€)
inc. escrow borrower2 inc. escrow borrower2 885
New TLB ($)
Total 2,600 Total 2,400
Due to cross guarantee and identical collateral package, credit facilities will be pari passu following
Completion of the transaction
Note: The structure is reflected pro forma for Completion of the Transaction
1 Percentages shown are approximate and indicative only, and the actual percentages will be determined in accordance with the merger agreement among Micro Focus, HPE and the other parties thereto. Prior to the Merger,
HPE will distribute on a pro rata basis all outstanding shares of Class A common stock of Seattle SpinCo, Inc. to HPE stockholders as of the close of business on the record date for the distribution. Immediately thereafter, a
wholly owned subsidiary of Micro Focus will merge with and into Seattle SpinCo, Inc., and all shares of Seattle SpinCo, Inc. distributed to HPE stockholders will be converted into the right to receive a number of Micro Focus
ADSs representing, in the aggregate, 50.1% of the fully diluted share capital of Micro Focus as of immediately following the Merger (excluding any Micro Focus shares to be issued pursuant to a de minimis number of
replacement awards to be granted to HPE Software employees at Completion under their existing employee incentive arrangements). Pre‐Completion Micro Focus shareholders will own the balance of the outstanding Micro
Focus ordinary shares at that time.
2 Escrow borrower established for the new money tranche, to be automatically merged into Borrower / incorporated into respective borrowers
37Summary of Proposed Terms
Facilities Revolver Term Loan
Borrower MA FinanceCo LLC Seattle Spinco, Inc
First lien on substantially all assets and capital stock owned by the Borrower and the Guarantors in the US and the UK, with certain exceptions and
Security
limitations to be set forth in documentation1
Micro Focus International plc and each material, wholly-owned restricted subsidiary in the US and the UK, with certain exceptions and limitations to
Guarantees
be set forth in documentation2
Tenor 5 yrs from Completion (2022) Nov-19 Nov-21 7 yrs from escrow funding (2024)
Amount ($m) $500m $412m $1,103m $885m equiv. ($/€) $2,600m
Margin L+350bps L+225bps L+250bps L/E+300-325bps
OID - - - 99.5
Floor 0% 0% 0% 0%
Amortization - 10% p.a. + bullet 1% p.a.+ bullet
Call protection - 101 soft call for 6 months
• Ticking fee from allocation 0-30d 0% margin, 31-60d
Ticking fee and 50% margin, 61d onwards full interest
- -
escrow • Funded into escrow with mandatory redemption at
OID if Completion does not occur by Mar 14, 2018
• Springing (tested when 35% drawn)
Financial
set at first lien net leverage of 4.85x • None
covenant
with 2 step downs
Incremental • $750m plus an amount equal to voluntary prepayments, plus unlimited up to 3.5x first lien net leverage
facilities3 • 50bps MFN with 12 months sunset, applicable to pari passu term loans except for $350m carve-out of $750m basket
• Usual and customary and broadly consistent with existing deal, including:
Negative • General debt basket $300m / 20% EBITDA, incremental equivalent debt and unlimited up to 3.5x first lien net leverage
covenants • Unlimited investments subject to 3.5x first lien net leverage + general investment basket of $225m / 15% EBITDA + Available Amount ($100m
starter basket)
• Unlimited RPs subject to 3.0x first lien net leverage + $250m general RP basket + Available Amount ($100m starter basket)
Affirmative
• Customary for facilities of this type
covenants
Mandatory • 100% of proceeds from debt issuances, 50% of ECF with step downs to 25% and 0% at first lien net leverage ratios of 3.30x and 3.00x, respectively
prepayment • 100% of proceeds from asset sales, with step-downs to 50% and 0% if first lien net leverage ratio isSyndication Timeline Key Debt Transaction Dates Date Event 4 April 2017 • New York Lender Meeting 6 April 2017 • London Lender Meeting 18 April 2017 • Commitments due from Lenders (5PM ET) Key Anticipated Merger Transaction Dates Date Event Late May 2017 • Micro Focus shareholder meeting 1 September 2017 • Targeted Merger Completion 39 Note: The Transaction dates set out above are indicative and subject to change
Q&A
Appendix
Micro Focus At a Glance
Overview Key financials – FYE Apr ($m)
• Product and service offerings Underlying Adjusted
Revenue2 Cash conversion (%)3
EBITDA2
• Micro Focus includes the mature businesses and has five sub-portfolios
delivered via a traditional perpetual licence model. SUSE delivered via a 1,500
1,408 1,410 111%
subscription model 88% 90%
• Scale and profitability
592 613 634
• LTM Oct-16A revenue $1.4bn1, Underlying Adjusted EBITDA $634m1
• LTM Oct-16A constant currency, pro forma growth rate of c.(1)%
• Diversified GTM strategy – via direct and indirect channels 2015A 2016A LTM Oct- 2015A 2016A LTM Oct- 2015A 2016A LTM Oct-
16A 16A 16A
• Diverse, loyal customer base
Revenue breakdown1 - LTM Oct-16A (%)
• > 20,000 customers, with significant blue-chip customer base
Geography Type4 Product
• Top 20 customers represent c.10% of revenue
• International reach and footprint APAC & Cons.
4%
Dev. and
ITOM CDMS
Japan Licence 20%
Subsc. 22%
10% 24%
• FY16 revenue split1 USD 63%; EUR 20%; GBP 5%; JPY 3%; other 8% 19%
North C&N
• Over 4,500 employees across more than 39 countries International America 10% SUSE
20%
38% 52%
Host con.
Maint. 13% IAS
53% 15%
72% recurring
revenue
Source: Company filings, announcements and presentations;
Note: Financials shown on a pro forma basis, adjusting for impact of Attachmate and Serena Software acquisitions;
1 Restated to H1 17 exchange rates
2 Historical Revenue and Underlying Adjusted EBITDA on a pro forma basis, unadjusted for currency;
3 Micro Focus cash conversion on an as-reported basis; LTM Oct-16 not pro forma for impact of Serena acquisition. Defined as Cash generated from operations divided by Adjusted EBITDA post exceptionals
4 Recurring Micro Focus revenue comprises Maintenance and Subscription revenue types
42Micro Focus Product Portfolio
15% 20% 20%
COBOL
Identity, Access and Development
Security Solutions Linux and
and Mainframe Open
Solutions Source
Identity Sentinel
Manager Enterprise
COBOL
13% 13%
22% 10%
Host Connectivity Development and IT
Development Collaboration
Solutions andOperations Management
IT Operations and Networking
Tools
Management
Reflection Solutions
Rumba Tools AccuRev
Silk OES GroupWise
MSS PlateSpin
CORBA
43 Note: Percentages represent proportion of Micro Focus group revenue on a pro forma, restated to H1 17 Exchange rates for the twelve months to October 2016AMicro Focus Structured Approach to Managing its Product
Portfolio
Micro Focus approach Four box model
New models Growth Drivers
‘Fund of funds’ approach to product
portfolio
Products that are relatively new and Products that have shown
unproven in the market but consistent potential for sales growth
expected to be growth drivers
Investment and focus driven by four-
box model
Objective: modest growth over Optimise Core
medium-term, high levels of
profitability, strong cash flow Products with declining sales over a Products that have maintained ‘flat
period of time, and the strategy is to sales’ over time with limited growth,
move back to core OR manage but are central to the company’s
decline and optimise returns in the revenues
Delivered through efficient and
long run
focused investment across portfolio
44Four Box Model In Action
LTM October 2016
Micro Focus New models Growth Drivers Core Optimise
Criteria
Revenue profile (% growth) (0.5%) High Growth Growth Stable Decline
1
R&D expenditure (% revenue) 14.5% =
Actions
1
Sales & Marketing (% revenue) 23.1%
1
General & Admin (% revenue) 6.2% = = = =
Consequen-
UAEBITDA margin (%) 45.0%
ces
Cash conversion 2 (%) 90.0%
Arrest revenue
Efficient and Focus on product Begin to focus on Maximise renewal decline where
Focus
focused development and margin and rates with heavy practical but
investment across growth rather than profitability rather focus on cost primary focus on
portfolio margin than growth control margins and cash
flows
Source: Company announcements and presentations
Note: Financials on a pro forma, constant currency basis for the twelve months ended 31 October 2016; UAEBITDA – Underlying Adjusted EBITDA;
1 Operating expenditure items excluding exceptionals, stock based compensation and amortisation of acquired intangibles
2 Cash conversion defined as cash generated from operations over Adjusted EBITDA post exceptionals; not pro forma for acquisition of Serena Software or adjusted for currency impact
45HPE Software At a Glance
Overview Key Financials – FYE Oct ($m)
Product and service offerings Revenue1 Underlying Adjusted EBITDA1,3
3,391
• Provides enterprise software solutions for IT Operations Management, 3,188 3,126 3,172
Application Testing & Delivery Management, Security & Information
Governance and Big Data Platform Analytics
• Products offered via term and perpetual licences (followed by Margin %
20.5% 20.9% 20.8% 20.5%
maintenance payments), SaaS model, professional services
694 666 649 650
Scale and profitability
• October 2016A Revenue $3,126m1, Underlying Adjusted EBITDA
2014A 2015A 2016A LTM Apr-16 2014A 2015A 2016A LTM Apr-16
$649m1 (implied margin of 20.8%)
Diverse, loyal customer base Revenue breakdown – FYE Oct-16A (%)
• Engaging with over 30,000 customers across the world Geography2 Type4 Product5
APAC & Consulting Big Data
• The company currently works with 98 of the Fortune 100 companies SaaS 9%
Japan 13% 5%
11% Licence
27% ITOM
International reach and footprint SIG 38%
North 33%
International America
• Revenue split2 USD 62%; EUR 15%; GBP 6%; Other 17% 36% 53%
Support AT&DM
60% recurring
51% revenue 24%
Source: Company filings, announcements and presentations
1 As-Acquired basis; adjusting for a number of divestitures and the transfer of HPPA and the MOBU division to the HPE parent
2 FY Oct-16 Revenue split by currency and Geography on an As-Managed basis; geographic breakdown based on Micro Focus regions
3 As-Acquired Underlying Adjusted EBITDA including horizontal costs that are expected to not transfer as part of the Transaction
4 Recurring HPE revenue comprises Support and SaaS revenue types
5 Revenue split by product on As-Acquired basis, excluding $4m of unallocated revenue
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