Compuware deal splits company
Detroit — Compuware Corp.'s new CEO reaffirmed the company's commitment to Detroit Tuesday following a completed buyout that took the software business private and split it into two entities.
"We're not going anywhere," said Chris O'Malley, the former president of mainframe operations who was named CEO Tuesday. He succeeds Bob Paul, who will step down from his role at the end of the year.
The computing services company announced Tuesday that Chicago-based private equity investment firm Thoma Bravo LLC closed on a purchase deal worth $2.4 billion. Under the agreement, Thoma Bravo has split Compuware into two separate companies: the mainframe software business Compuware that has been the backbone of the company; and Dynatrace, which is focused on real-time software management and maintenance.
No matter what Thoma Bravo intends to do with it, the Compuware of the future will look a lot different than the Compuware of last week, says David Kudla, CEO and chief investment strategist for Mainstay Capital Management in Grand Blanc.
"When we talk about this deal, this is what could change the fate of Compuware," said Kudla. "They are on a path of decline now. Depending on how they are viewing these businesses, it could breathe some life into the company."
The mainframe business will remain headquartered in Detroit and is expected to experience a decline in revenue of about 7 percent between 2014 and 2016, to $246.6 million, according to a proxy statement filed last month with the U.S. Securities and Exchange Commission. On the other hand, Dynatrace, which will be headquartered in Boston, is expected to see an 11 to 13 percent increase in revenues between 2014 and 2016, to $420.1 million, according to the same statement.
But O'Malley, 51, has a different vision for the company. He says the projected declines can be turned around if Compuware works more like a start-up and focus on quick innovation. There are no plans for outsourcing work from Detroit.
"The fact that (all our resources) are here allows us to be agile," said O'Malley. "We're doing what a startup would do, but we're doing it with a large company with an enviable customer base."
O'Malley rises to his new role after serving as president of mainframe operations. He says he went through similar challenges years ago when he was executive vice president of CA Technologies. .
"At the end of the day, the success or lack of success in the market will determine what (Compuware) will become," he said. "I went through the same thing at CA. There is nothing about this situation that concerns me to where I don't think we can do the same thing here."
O'Malley teased new technologies that will make their debut in January and cause what he called "techtonic changes" in the mainframe field.
John Van Siclen will return as CEO for Dynatrace. He held the position since before Compuware acquired the business in July 2011, after which point he was named general manager of the division. Paul is expected to exit with a $6.7 million package of cash and equity, according to the SEC statement. He will also receive more than $13 million for his Compuware stock options.
Compuware has been struggling for two years and fended off a takeover attempt from Elliott Management Group. The company also spun off Covisint LLC, which it acquired in 2011, and sold its downtown headquarters at Campus Martius for between $100 and $150 million. It will lease space in the building.
The deal with Thoma Bravo first surfaced early in the year and the merger was made official Sept. 2. It means Compuware is now removed from the NASDAQ Stock Market.
"Compuware has established market-leading franchises in both application performance monitoring and mainframe solutions," Orlando Bravo, a managing partner at Thoma Bravo, said in a statement."The Thoma Bravo team is excited to bring our expertise to both divisions to help fuel innovations that will benefit their growing customer bases."
Compuware was founded by Peter Karmanos in 1973; it went public in 1992 and moved to Detroit from Farmington Hills in 2003. The company employs about 1,200 in Detroit and about 3,000 worldwide. It was unclear Tuesday how many employees would remain in the Detroit headquarters. O'Malley said the company is currently hiring.
Private equity investment firms such as Thoma Bravo typically buy up struggling companies, turn them around, and sell them for a profit. It is not clear what the overall plan is for Compuware or how long Thoma Bravo would want to hold on to the company. A request for comment was not returned.
On its website, the company describes its investment style as "buy and build."
"Thoma Bravo's investment strategy... (involves) investing in businesses in those sectors that can grow both organically (through changes in their cost structure and expansion of their revenues) and by acquiring and integrating similar businesses," according to the company website.
Kudla says Thoma Bravo tends to follow the same business plan for its investments.
"I think the strategy is to buy and build, combine it with other businesses, make it profitable and sell it in three to five years," Kudla said. "What they've tried to do before is study a fragmented industry, identify the high potential areas and put those companies together."