Anatomy of a $256M Acquisition: The Story of DynaTrace, Compuware, and Bain Ventures
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plenty of interest but “no other suitors.” (I had to wonder about IBM, but he didn’t comment on that.) He says the decision came down to three factors, besides the price and other terms.
First was the strategic rationale for the deal. In 2009, Compuware bought Gomez (another Boston-area firm), which is complementary to DynaTrace in that it tells you how long it’s taking an e-commerce webpage to load, say, but not why it’s running slow or what to do about it, Nye says. So there was a natural product fit there. Second was the “very, very strong” cultural fit with the DynaTrace team—in particular, making sure the technical staff were treated well in the acquisition and incentivized to stay on “in a very material way,” he says. And third was the “high level of integrity” that Compuware showed throughout the deal process, he says.
Not to get too cheerlead-y here, but Nye is a Boston guy, and (not surprisingly) he views DynaTrace as a Boston success story. “This is an incredible marketplace,” he says. “Boston is a killer place to locate because so much of the customer base is on the East Coast.” Plus it’s much easier to reach the European market here, compared to California, and the tech talent pool is incredibly strong, he says.
As an aside, Nye also co-led Bain Capital Ventures’ investment in LinkedIn, together with Jeff Glass, back in 2008. (Turns out Nye is the brother of Dan Nye, LinkedIn’s former CEO.) That investment didn’t work out too badly either. So I asked him for some broader insights into how he picks companies to bet on. “What I look for is, what are the anchors? What has sustainability associated with it?” he says.
For LinkedIn (NYSE: LNKD), Nye says, it was the fact that the company commoditized lists of executives previously owned by recruiters, and it had “more sustainability and ability to monetize both active and non-active members” than older competitors like Monster.com. (LinkedIn makes money off you whether you’re actively looking for a job or not.)
For SolarWinds (NYSE: SWI), a network management software firm in Austin, TX, it was building “a business model around network performance for network engineers, distributed over the net,” he says. That led to fast, viral growth and an installed base that was a high barrier to entry for competitors.
Lastly, for DynaTrace, it was fundamental intellectual property around how to manage applications in different languages and software environments. “Name one business that doesn’t run on an application. Or thousands of applications. Who doesn’t care about performance and productivity?” he says. “If you have better capability to see what’s going on in the intrinsics of applications, you need fewer IT guys, and you can play more offense than defense.”