Compuware: When one becomes two
After 40 years, Compuware is splitting up and going private - with the promise of more innovation for customers
The split, however, wasn't Thoma Bravo's idea, but rather the fruition of a plan by the management of Compuware to separate the company down its main broad product lines - mainframe software tools and application performance management software - and to whip it into shape after a decade in the doldrums.
"Honestly, it [Compuware] has been on a gradual decline since 2001," says John van Siclen, the CEO of Dynatrace before Compuware took it over and he became general manager instead, and now the CEO of Dynatrace once again.
Compuware got into the application performance management market via its acquisitions of Adlex in 2005; Gomez, one of the leading web application management tools vendors, in 2009; and, of course Dynatrace, back in 2011. Compuware spent just under $600m in total on those applications.
But in May 2014, the company decided to split into two entities given the minimal synergy between what had emerged as the two main elements of Compuware - the traditional mainframe-centric tools, and the application performance management products based around the company's acquisitions of Gomez and Dynatrace.
Given that the plan pre-dated the takeover, why did Compuware agree to be acquired by Thoma Bravo - especially after it had already fended off one private equity takeover, by Elliott Management, in 2013? "What we need to change now is the finance, IT and HR infrastructure - the G&A [general and administrative] expenses, which are 18 to 20 per cent of revenues. At a software company, it should be more like nine to 10 per cent of revenue," says van Siclen.
"It's hard to do, especially in the public spotlight because you can make no mistakes. It would've taken us 18-24 months to do this. As a private company under Thoma Bravo, we can do it in 90-100 days, with no risk and much more aggressively in terms of the changes we make to drive efficiency and agility," he adds.
The companies, both Compuware and Dynatrace, will emerge from private equity ownership in three to five years time leaner, more profitable and potentially bigger, too, says van Siclen. "It's about growth, not skimming off dividends."
The other side
Over at Compuware, the continuing mainframe software tools company, newly installed CEO Chris O'Malley, a software tools veteran who used to run Computer Associate's mainframe business unit, has his own plans for the firm.
"Part of the reason for me coming into the business was the assumption that it was going to be split in two," says O'Malley. What the mainframe market needs, he adds, is a good dose of innovation.
"A customer recently commented that the mainframe software market is like a bunch of old, fat bulldogs, sitting on a porch, all boasting about what they did 20 years ago... there's a demand for innovation on the platform because new 'needs' have arisen. One of them is around mobility, which is having a significant effect on the mainframe because ... mobile apps' capacity to be useful to customers rests on the fact that you can integrate them with [the applications running on] the mainframe."
However, there hasn't been nearly as much work done on integrating mobile apps with legacy applications as there has been developing mobile apps themselves, says O'Malley. He also intends to speed up the release cycle so that customers will get updates every quarter - helping mainframe users keep up with innovation elsewhere in the industry rather than getting left behind.
The changes, though, probably won't be good news for the already depressed city of Detroit, where Compuware is based. The efficiencies will no doubt mean job losses throughout the companies' currently shared back office as manually processes are automated and old equipment, such as conventional phone exchanges, are thrown out in favour of digital.
However, customers and potential customers of Compuware's tools and Dynatrace's applications shouldn't see too much difference. Indeed, van Siclen is promising to release "game changing" new products soon.
"We have quite an aggressive organic innovation programme. We have about 600 research and development professionals, in five different labs around the world. That investment is one that TB will continue with and we have a number of things that are coming that will be game changing in re-defining the application performance management space," he says.