Novell (NOVL), the struggling software maker once among the computer industry’s best known names, is trying to reclaim relevance through an embrace of open-source software and a détente with onetime rival Microsoft (MSFT). Now, having stemmed a multiyear revenue decline and beefed up its balance sheet, Novell plans to start acquiring smaller software companies in a quest for growth.

Novell is flush with cash—$1.86 billion as of the end of its fourth quarter, about twice annual revenue. Ron Hovsepian, an IBM (IBM) veteran who took over as Novell’s CEO in 2006, says he will start using that pile to buy companies. He singles out targets that specialize in the Linux operating system, data-center management software, and security software markets. “We have to generate a return to shareholders for spending their money,” says Hovsepian. “These three markets are plenty for us to grow.”

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