, which works with firms to modernize enterprise software applications, is being sold to Micro Focus International in a deal worth $9.7 million in cash.

The deal is expected to close by year’s end.

The selling price reflects a small return for investors such as Noro-Moseley Partners in Atlanta, Wakefield Group in Chapel Hill, Intel Capital and Wachovia Strategic Ventures. Backers, including current Chief Executive Officer Steve Masonave, had poured more than $24 million into the firm since its founding in 1997 by serial entrepreneur Vivek Wadhwa.

Unable to raise capital from its existing investors, Relativity faced the choice of “hunkering down” and trying to survive through a tough economic climate in 2009 or selling, Masonave told WRAL Local Tech Wire in an interview.

Relativity raised $6.5 million in its last round of financing in 2004, with Wachovia as a new investor. It also had a major partner in IBM, which sold Relativity solutions under an IBM label.

Asked if he had discussed selling Relativity to IBM, Masonave declined comment.

Wadhwa, who left Relativity in a bitter dispute with its investors and no longer holds an interest in the company, said the sale price seemed low to him.

“I’m not surprised, but am very disappointed that they couldn’t get anywhere near the market price for the company,” he told LTW. “The company has been in discussions for the last two years with players like IBM. The asking price was multiples of this. It is obvious that the VCs are in dire straits and need to dump their investments.”

The selling price roughly equates to Relativity’s projected revenues for this year and also reflects what Masonave described as “plunging valuations” of venture-backed companies. “If we had done this a year or so ago, we would have gotten 3 to 4 (times) revenues,” he said.

“We had a banner year in 2007 with a compound growth rate of 49 for 2006 and 2007,” Masonave explained. “We went into this year cautiously and actually in discussions with our investors – including Wachovia – about expansion capital. Everybody knows what happened to Wachovia.

“Our game plan for a last round of expansion capital came to a screeching halt.”

Masonave will not stay with the combined company once the deal is complete, he told WRAL Local Tech Wire. He and his wife live in Raleigh, having moved to the Triangle when he took over as CEO from Wadhwa in 2003.

“I plan to take some time off,” he said.

The company has some 100 employees, including 35 in the Triangle. Masonave said he expects Micro Focus will make few layoffs.

Micro Focus is based in the United Kingdom and has development offices in Raleigh as well as Austin, Texas, and India, where Relativity also has operations. “There is some overlap,” Masonave said.

Relativity was selected as one of Fortune magazine’s 2001 Cool Companies and Computerworld’s Top 100 Emerging Companies for 2002. Wadhaw left as chairman in a bitter dispute with investors, and he later sued the company. The two parties reached a settlement, details of which were not disclosed.

“The board of Micro Focus believes that combining the businesses of Micro Focus and Relativity will further strengthen Micro Focus’s position as a leading player in the fast-growing, highly fragmented application modernization market,” the companies said in a statement.

Micro Focus, a public company whose stock is traded on the London Stock exchange, reported revenues in excess of $170 million in 2007.

“It is intended that the Relativity business will be fully integrated into the Micro Focus group following completion of the transaction,” said Micro Focus Chief Executive Officer Stephen Kelly. “The acquisition of Relativity is consistent with Micro Focus’s strategy of acquiring companies that complement our core areas of expertise and where significant synergies can be derived.”