I had the unique experience of working for a private equity-backed software company for several years. There are a few things that set apart that experience for me from any I have had before in my 20+ years working in the high tech sector. However, those few things have had a lasting impact and memory on my career since then.
Private Equity Pump and Dump?
First of all, the news that Compuware has been taken private by Thoma Bravo is interesting but not surprising. In my opinion, PE companies don’t buy companies in the midst of a growth story, they buy companies that are floundering and try to inflate the value for another suitor…that is their history, it’s what they do. Often, these companies are carrying some amount of debt which the PE company will cover, and to gain some return on their investment, they will do whatever to even out the books for some liquidity event.
In my experience, once a PE company takes control, the innovation stops. There’s no reason to risk any time, resources, or money on R&D. Which, at the end of the day means customers won’t be getting cutting-edge technology or new features. Furthermore, there is often an exodus of top talent. Again, this can strain development, and more importantly, customer success.
What About the Customers?
If you are a prospective or existing customer of Compuware, you should deeply consider your position after this news. My experience working at a major PE portfolio company is new customers will be forgotten as a result of this acquisition and existing customers…well good luck there too. Innovation and development will take an enormous hit in the next 6-12 months as the tendrils of new centric management philosophies take hold. A lot of times, this new philosophy is based on EBITDA.
What is an EBITDA centric philosophy? It’s simple, it’s when company employees are incentivized for improving EBITDA instead of other customer centric measures of success. EBITDA is focused solely on corporate profitability!
I watched my company, which was agile, nimble, and aggressive with updates severely lose their development velocity. That’s not conducive to innovation and it’s not even tolerable when it comes to bug fixes.
During my tenure after the buyout, I watched as several large strategic customers decided to move on with other, more innovative technologies.The lack of innovation in the market segment and the collapse of customer care were defining attributes in my recollection of them moving on. The bottom line is if you stop innovating and forget about your customers in the high-tech world you are dead.
Based upon my experience, I’ve personally vowed to never work for another PE-backed company again. I wish all the current Compuware customers the very best in their journey with their newly privatized vendor but unfortunately I know there is pain on the horizon.
Have you ever worked for a company taken private by a PE company? Is my experience unique or do you have a similar story to share? I’d love to hear about all experiences in the comments below to try and keep this dialogue as accurate as possible.
The views and opinions expressed herein are those of the author and may not reflect the views of AppDynamics, Inc. or its affiliates.