COBOL consolidation

Sometimes something happens, and you just miss it. That’s the case when Micro Focus quietly purchased Acucorp two months ago.

Micro Focus and Acucorp are among the few remaining providers of COBOL tools and runtimes. Micro Focus was by far the larger and more successful company. Its fiscal 2006 revenue was around US$170 million; Acucorp was about 1/10 its size.

The purchase, which was mentioned along with Micro Focus’ financial results, was for $40.7 million, not a bad price.

But what’s going to happen next? It would be fair to expect that the product lines would be consolidated, and that users of Acucorp’s Extend system will be eventually migrated to Micro Focus’ COBOL technology. However, it does appear that the forthcoming Extend 8 will appear later this year, as scheduled.

Even so, Acucorp customers should be worried about the longevity of their platform. When announcing the purchase, Micro Focus said, “Following the acquisition, Micro Focus plans to restructure the business and aims to increase margins over time to a level consistent with Micro Focus’ existing business.”

How do you increase margins of a software business? Two ways:

• Increase the revenue from the product line
• Decrease the cost of the product line

Increasing the revenue would imply raising prices, or increasing the volume of products sold. While possible, I don’t think that’s likely. Instead, I expect Micro Focus to decrease cost by paring back development of future products in the Acucorp line, beyond any specific technology they need, and pursue an aggressive program to swiftly migrate customers to Micro Focus products instead.

In other words, Micro Focus will benefit from the acquisition primarily by taking its major competitor out of the market.

Of course, there are other players in this industry: One of the most interesting, technologically, is NetCOBOL, from Fujitsu, which targets .NET servers. Still, given that very few new projects are started in COBOL, consolidation is inevitable.