Bain Capital, the US-based private equity group, is poised to bid for Micro Focus with an offer worth up to £890m.
Micro Focus revealed on Tuesday it had received an inquiry relating to a possible takeover.
People close to the deal told the FT that Bain approached the UK group over Easter. It is thought to be preparing a bid worth 425p-450p a share, compared with 338p when it made the approach and 371½p on Thursday. Analysts said that a share price decline of more than a third in the past year had left Micro Focus attractively priced for a private equity bidder.
Bain’s previous investments in European technology companies include last year’s acquisition of SkillSoft, an Irish provider of e-learning software, for $1.2bn. The group manages about $65bn (£39bn) in assets.
Micro Focus, which updates ageing computer systems and tests software, has been hit by cancelled and postponed contracts in the US. In February, it said sales and earnings for the year to April would be about 10 per cent lower than analysts had expected, prompting a 26 per cent one-day fall in its shares.
Nigel Clifford, chief executive, resigned this month, with Kevin Loosemore, non-executive chairman since 2005, becoming executive chairman. Milan Radia, an analyst at Jefferies, said Micro Focus was “a rudderless ship right now”.
Its efforts to break into the software-testing field had fallen short of expectations, he said. Its established operations – servicing systems using the increasingly unfashionable Cobol programming language – faced a market set for steady, long-term decline, he added.
“They are running just to stand still. Over time, the performance of the company always converges with the end-market growth, which is ultimately negative,” Mr Radia said.
However, Vijay Anand, at Execution Noble, said a valuation of up to 450p was justified. “The business will be worth a lot more if the company gets its execution strategy right,” he said.
Analysts believe that a counterbid is possible, either from a private equity rival or a trade buyer such as Hewlett-Packard or Microsoft.
Mr Anand said that a private equity deal was more likely, because a takeover by a big technology company would reduce the value of the business.
“One of Micro Focus’s unique selling points is its independence – customers have the choice to take any sort of hardware,” he said.