A Private Equity Buy Out Horror Story

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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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Jim Hirschauer

Jim Hirschauer

Jim Hirschauer is a Technology Evangelist for AppDynamics. He has an extensive background working in highly available, business critical, large enterprise IT operations environments. Jim has been interested in application performance testing and monitoring since he was a Systems Administrator working in a retail bank. His passion for performance analysis led him down a path where he would design, implement and manage the cloud computing monitoring architecture for a top 10 investment bank. During his tenure at the investment bank, Jim created new processes and procedures that increased overall code release quality and dramatically improved end user experience.