By reading online articles and press releases, one would think that every company has a good year every year. However, not even the most successful companies follow a continuous upward trajectory. Exponential growth may be achieved for extended periods, but it will certainly be followed by some plateau, “correction,” or industry shift that enforces the law of averages. After all, what goes up inevitably comes down, at least to some degree.
Such was the case for TIBCO, the Silicon Valley software company that enjoyed fifteen years of tremendous growth providing licensed, on-premise integration, analytics, and event-processing solutions. By 2013, though, growth slowed, expenses rose, and profitability and EBITDA fell as a percent of overall revenue.
In response, the company’s board of directors undertook an exhaustive exploration of potential strategic initiatives—some of which included transitioning to higher-volume sales with lower price points, acquiring other synergistic businesses, and divesting existing divisions or assets, as well as putting the company up for sale. Ultimately, the board determined that the short-term shareholder returns offered by interested purchasers would provide a compelling premium—a premium that was far greater than what could reasonably be achieved by other alternatives.
The winning bid came from Vista Equity Partners, which, in addition to the highest price, offered successful experience with its own diverse software portfolio and extensive knowledge of enterprise solutions. Bill Hughes, TIBCO’s executive vice president, chief administrative officer, and general counsel, says, “When you grow organically as quickly as TIBCO did, you scramble to keep up—often without prioritizing rigorous operational processes. Vista provides a set of methodologies that address everything from sales to legal that have already been proven successful in their other holdings. That’s a great benefit for us.”
Once the transaction to become private closed, it also became clear to TIBCO management that the lack of public market pressures, scrutiny, and reporting afforded them more time to make meaningful operational changes that would result in long-term improvements. For example, on the sales side, TIBCO is shifting its focus from primarily large-scale deals to being able to accommodate higher-velocity, higher-volume transactions at lower price points.
This shift in sales can then be parlayed into extended relationships that foster larger ongoing transactions. Analytics products such as TIBCO Spotfire and TIBCO Jaspersoft lend themselves to this “grow with us” strategy. Hughes points to bundles that can be created with products like TIBCO Rendezvous, TIBCO BusinessWorks, and other business software solutions to create a foundation for simple integration projects. However, as customers evolve and develop more complex integration needs, projects can be extended and enhanced with the company’s more powerful solutions.
GOING PRIVATE: BY THE NUMBERS
1999 year TIBCO went public
$4.2b value of the deal that took TIBCO private
$24/share price under terms of acquisition
26.3% sale price premium from previous closing price
Technology trends and market demands have shifted in TIBCO’s favor during its period of retooling. After going private, the company prioritized a cloud-first product redesigning and repositioning in order to address shifting software delivery paradigms. Since then, the market’s embrace of cloud services has occurred faster than expected, which has spurred further refinement in company revenue stream models. Expectations are that licensed, on-premises solutions will continue as part of TIBCO’s offerings, but the rise of subscription, cloud-based packages provides additional avenues for balancing business and ensuring long-term, stable revenue.
TIBCO’s software user profile has also rapidly evolved to extend beyond traditional IT departments. So, in addition to the launch of cloud versions for existing products, the company has introduced “citizen developer” solutions such as the new TIBCO Simplr, a cloud data integration tool intended for nontechnical users.
The overall explosion in the volume of data is also attracting new customers. Hughes points to TIBCO Mashery, an API management platform that plays an integral role in handling data as it moves between the cloud environment, mobile devices, and the emerging industrial Internet of Things. Mashery can also integrate APIs to incorporate the many new connected “smart” items.
“The integration and analysis of data is becoming increasingly vital as more and more devices come into the ‘smart data’ fold. They all need to feed data back and forth to apps, and since our software is directly involved in that, we are as relevant as ever.”
He is quick to add, “As we work through all these transitions, we’ve seen some expected contraction in our overall revenue because structural changes take time to implement and to bear fruit. But the private environment has given us the time we need to innovate and find the right mix of products, technologies, and strategies, and then start pushing top-line growth again. It’s very likely that the public markets wouldn’t have provided that luxury.”
These changes in business strategy have increased demands on TIBCO’s legal department. Contracts for a higher volume of sales at lower price points ($10,000 to $100,000 as opposed to $10 million to $20 million) now must be reviewed. Hughes and his team are investigating approaches that will enable “click-through” transactions to streamline the “contract-to-cash” process.
“We’re always looking for ways to simplify,” Hughes says. “Ideally, we can automate basic, straightforward purchases so that most customers can easily download products and our legal team can stay focused on more complicated transactions.”
One possibility may be the implementation of a “smart contract” encapsulated within a “blockchain database,” a ledger of all bitcoin transactions. The database holds the terms of a contract and controls access to a software program or service. Once the parties have taken certain steps, the blockchain system would check against the distributed data in the chain and confirm that the contractual requirements have been met. That would enable the buyer to access the software or service and the company to be paid without “human” involvement on the company side of the transaction.
“Desktop software consumers are used to being able to click to initiate a purchase, but a blockchain-type approach would be new in the enterprise software space,” Hughes says. “Lawyers will always be needed for transactions that are more complex, but it’s certainly an approach worth considering in trying to automate ‘order-to-contract-to-cash’ higher-volume, lower-cost purchases with a smaller group of internal personnel needing to be involved.”
TIBCO’s legal department has a number of ongoing improvements underway, including continuous improvement of contracts, supplementing the legal team with offshore and near-shore resources, and refining the process by which issues are referred to the appropriate group.
“With Vista, we are lucky to have a single ‘shareholder’ that defines the priorities and provides proven procedures and strong practices that not all companies have the opportunity to access or to implement,” Hughes says. “Going private has definitely given us the freedom to pursue solutions that are customized both to our needs and those of our customers.”