Reportedly, private-equity firms Vista Equity Partners LLC and Thoma Bravo LLC are pondering over the buyout of Compuware Corp. (CPWR). This is the second time in last 15 months that Compuware attracted attention from prospective private-equity buyers.
Although no talks between the parties have been reported, according to Bloomberg the company’s finances are being reviewed by the duo. Compuware rejected a $3.2 billion bid from activist investor Elliott Management Corp. in January last year.
Post the Elliott offer, Compuware reportedly solicited a number of other private equity funds such as Blackstone Group LP, TPG Capital LP and Golden Gate Capital for a possible buyout. However, to date, nothing concrete has materialized from these discussions.
After rejecting Elliott’s offer, Compuware announced a number of initiatives that included cost cutting, divestiture of non-core units, dividend payment and lastly the spin-off of its cloud-based division Covisint into a separate publicly traded unit — Covisint Corp. (COVS).
On May 16, 2013, Compuware declared its first dividend of 12.5 cents as part of its restructuring program. Covisint started trading as a separate company from Sep 2013. Compuware offered approximately 18% of its stake in the IPO. The company is expected to distribute its remaining shares directly to shareholders within a year of the completion of the IPO.
Earlier this year, Compuware divested three strategic business units — Changepoint, Professional Services and Uniface — which will allow management to focus better on the core business, thereby improving execution. Compuware’s restructuring plan is expected to save approximately $110.0–$120.0 million on an annual basis over the next couple of years.
We believe Compuware’s initiatives are positive for shareholders over the long term. Compuware expects APM to grow 9.0% in 2014. New program wins and introduction of new products will help Compuware to counter strong competition from the likes of BMC Software and CA Technologies (CA). This also makes the company attractive to private-equity buyers.
However, overdependence on International Business Machines’ (IBM) technology may rationalize growth prospects to a certain extent. Furthermore, the intensely competitive landscape remains a major headwind.
Currently, Compuware has a Zacks Rank #3 (Hold).