They found $5 billion in the couch
I did a calculation like this too quickly and really goofed it up on this week’s Software Defined Talk, doing some double counting (I think?) and otherwise just messing it up all crazy-like. This wild estimate is, hopefully, less wild.
With the sale of Compuware to BMC, I think the PE firm Thoma Bravo made a huge profit in six years. The firm bought Compuware for $2.4bn in 2014, pulled out and IPO’d Dynatrace in July 2019 for a valuation of $8.857bn today , and just sold the rest of Compuware to BMC for, likely, something around $2bn.
It’s that Dynatrace IPO that was the real money maker. What’s mysterious to me, as with most private equity successes, is why the original management team couldn’t unlock all that value.
Compuware purchased Dynatrace in 2011 for $256m. In 2009, Compuware bought Gomez for $295m. These two companies were put into one product suite under the Dynatrace name (I think). So, let’s say the price for building Dynatrace was $551m.
Under Thoma Bravo’s ownership, that investment (plus the ongoing cost of running that business) became an $8.857bn asset. So, like, that’s a massive jump. Also, it’s worth around 4.5x more than the business that used to house it, Compuware.
Let’s do some back of the enveloping on Thoma Bravo’s profit. From the Barron’s article on this and a few other sources, we find:
- $2bn cash from selling Compuware to BMC.
- Thoma Bravo has sold and is filing to sell a total of about $700m of Dynatrace stock.
- After this selling, it’ll still own 51% of Dynatrace (so, a $4.6bn asset - not really super-liquid [I mean, you can just dump that much stock at once and keep the price stable], but still).
- (I think my SDT calculation screwed up here because I somehow put in the sale of that other 49% at the IPO price - I dunno, something dumb like that.)
- I’m not sure if Thoma Bravo has previously sold share, I thought I’d found that they had but can’t track it down now.
- It probably got something like $200m in Dynatrace dividends already.
- Dynatrace’s CEO says that Thoma Bravo has “never taken a penny out of [Dynatrace],” I’m not sure about Compuware, but we’ll drop such considerations out.
And, then, if you add in the $4.6bn in equity they still own in Dynatrace, you come up to $7.5bn. If you subtract out the $2.4bn to buy Compuware, you’re at, like, $5bn in profit…?
I mean, the main thing to look at is the selling price of Compuware (~$2bn) versus Dynatrace’s current valuation ($8.857bn), a difference of $6.8bn found in the couch.
(Now, the biggest befuddler for this is the interest Thoma Bravo paid on any loans (Dynatrace IPO’ed with $629m in debt) and other fiddly finance things I don’t understand or can account for. But, hey, I’m no professional - I’m just trying to pass the time on a grey Friday afternoon here.)
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(Picture from @pczarkowski.)
Said episode of Software Defined Talk that I made the wildly off calculation in:
With the virus shutting down conferences and keeping people in the home office, we discuss the value of in-person conferences and how remote ones might could be better. Also, GKE’s kubernetes cluster pricing (and Amazon’s drop to match the price) gives us an anchoring point for pricing running a cluster. Coupled with the recent CNCF survey you could make an interesting stew. Finally, Coté tries to run some numbers to figure out how much Thoma Bravo profited from taking Compuware private. (Also, he always mispronounces it as Thom-oh Bravo.)
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