Compuware Private Equity buyout: why you should be worried as a customer

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.

A Private Equity Buy Out Horror Story

This is a cautionary story from my personal work history about one private equity company’s buy-out of an enterprise software vendor.

A major news story broke today about Elliot Management Corporation’s bid to take Riverbed Technology private for a premium of $19.00 per share in cash. One of Riverbeds competitors Compuware has also been a target of buy-out offers and continues to have an uncertain future as a public company. Compuware announced today a partial divestiture of some of their business units.

In this blog post I’m going to share with you my personal experience dealing with the aftermath of a software vendor being bought by a private equity firm. All names are being withheld to protect the identity of the guilty parties.

2 Years of Good Value

The story begins several years ago when I was working as a Monitoring Architect for a major investment bank. We had purchased a two year, two million dollar, “all you can eat” site license from a major software vendor. This entitled us to deploy as many licenses of their product as we wanted within a two year period. At the end of those 2 years our licenses would turn perpetual and we would true-up the total number and pay 15% maintenance on the value of those licenses.

Towards the end of this two year period the major software vendor spun off their monitoring business by selling it to a private equity firm. This is when things started to go very wrong. We were near the end of our two year contract so we were beginning the negotiation process on a new contract. We were happy with the technology, support, and relationship with our major vendor and intended to continue using their software.

You want us to pay how much?

Private Equity Buy Out Riverbed CompuwareUnder new leadership, we were told by our account manager that we owed four million dollars in licensing fees since we deployed too many licenses under our “all you can eat” contract. The contract had no wording to support this and an argument ensued. After a very long negotiation period we eventually agreed to pay about four hundred thousand dollars in maintenance fees and we immediately started looking for a replacement vendor.

Get Out and Don’t Come Back

At this point the relationship was completely broken. There was no possible way this vendor could stop what they had set in motion. It was my job to find suitable replacements for their products being used by our company. With 2 years all of their software was ripped out and replaced by competing products. Every time I think about this situation I am amazed by the greed and the gall of this company, all under the direction of a private equity firm.

The guilty party is still in business today somehow, but from looking at their product portfolio I don’t see much progress in the past 5 years. It seems like the private equity company is just riding out the technology they bought and trying to squeeze as much profit as possible from it until such time where it will just die off. It’s sad to see good technology being left to grow antiquated and rot.

So that is my cautionary story. Be very wary when there is talk of a buy out from private equity. Be proactive and seek options in case things go down like they did for me at the investment bank. Have you ever been in a similar situation? Do you have a happy or sad tale to tell? Let me know in the comments section.

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