If you are a TIBCO customer (or are considering TIBCO), you must have heard by now that TIBCO is going private. TIBCO, which had seen dropping revenues and pressure to sell due to mismanagement, announced last week that it had entered into a definitive agreement to be acquired by Vista Equity Partners, a private equity firm. TIBCO stockholders will receive $24.00 per share in cash, or a total of approximately $4.3 billion, including the assumption of net debt. The transaction is expected to close in the fourth calendar quarter of 2014.
As a result of this news, you are probably asking yourself how TIBCO going private is going to affect you. To better understand the repercussions of this acquisition, I looked at the purchasing behavior of Vista Equity Partners (http://www.vistaequitypartners.com).
Vista Equity Partners was founded in 2000 and is currently in the business of investing in high-tech companies. They have developed their own processes to evaluate potential investment opportunities, execute acquisitions, and implement operational improvements with the ultimate goal of realizing returns to increase value to their shareholders. TIBCO passed their litmus test as a company that due to mismanagement was not able to generate its potential returns. This is why Vista Equity Partners acquired TIBCO. Once the acquisition is finalized, Vista Equity Partners will move to their next step, which is the application of their Vista SOPs (Specific Operational Improvements). So, what does this mean to a TIBCO customer?
Efficiency injection can affect TIBCO in many different ways, which should be of concern to an existing or potential TIBCO customer. Some of the changes that may occur are:
- Minimized investment in product development and support
- Product roadmap changes, slow-downs, or retirements
- Lack of significant investment in crucial areas like Mobile and Cloud
- Product spin-offs into independent companies
- TIBCO personnel (Engineering, Sales, Marketing, Support teams) consolidation and reduction
- Merger with another Vista Equity company (for example, in February 2014, Vista Equity merged two of their companies, Lanyon and ACTIVE Network Business Solutions Group)
Once the SOPs are applied and efficiencies have been successfully implemented, Vista usually does one of three things with the acquired company (or its parts):
- Keep it as a capital generating source
- Make it public, i.e. IPO
- Sell it to the best bidder
Examples of this behavior are BigMachines, which they acquired in 2001 and sold it to Oracle in 2013 for an estimated $400M. Likewise, they acquired MicroEdge in 2009 for $30M and sold it to Blackbaud for $160M in October 2014. And, recently Vista Equity announced that they were seeking buyers and considering an IPO for Misys, a company they had acquired in June 2012 and merged with Turaz, another Vista Equity company.
In addition, a private company does not have to share any financial information, the way a publicly traded company has to. To a TIBCO customer, this means less or no visibility into how TIBCO will be investing its capital, e.g. in R&D, support, marketing, sales? Likewise, there will not be an easy way to determine how TIBCO is doing compared to its market equals by comparing its financials against any other publicly traded high-tech company.
In conclusion, the acquisition of TIBCO by Vista Equity Partners, albeit a good thing for Vista Equity shareholders, will most probably cause changes in TIBCO that will directly affect its current and prospective customers. In my opinion, TIBCO customers find themselves at a divergent point at which they need to really ponder their future relationship with TIBCO. During these uncertain times it is best to put your trust in IBM, a stable market-leading organization with a long heritage of always putting customers’ needs first.
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