Compuware Bid Is No Blowout as Buyout Wait Ends: Real M&A

Thoma Bravo LLC is paying only what it has to for Compuware Corp.

The buyout firm offered $10.92 a share for the Detroit-based seller of business software, only an 8 percent premium to Compuware’s average stock price this year. Susquehanna International Group LLP says the bid, which caps a 21-month campaign by activist investor Elliott Management Corp., is the best Compuware shareholders are going to get given the limited interest.

The transaction stands apart from others announced this year, as acquirers from Burger King Worldwide Inc. to Facebook Inc. pay steep valuations amid a $2 trillion dealmaking frenzy. As a stand-alone, analysts were predicting Compuware shares would only climb to $11-and-change in the next 12 months, according to data compiled by Bloomberg.

“It’s a fair price,” Kirk Materne, an analyst at Evercore Partners in New York, said in a phone interview. “Given the timeframe it’s taken to get here and the fact that there’s a present value to money whereas most price targets are 12 months in nature, the offer price is in the ballpark of what you’d expect.”

At $2.2 billion after net cash, Thoma Bravo is valuing Compuware at about 16 times its trailing 12-month earnings before interest, taxes, depreciation and amortization, in line with the median Ebitda multiple for software deals in the past decade that were $1 billion or larger, data compiled by Bloomberg show.

Fair Value

A representative for Compuware declined to comment beyond its statement yesterday, which said the deal “provides shareholders with immediate and substantial cash value” and a significant premium. Representatives for Chicago-based Thoma Bravo didn’t respond to a request for comment.

Thoma Bravo’s offer comprises a net cash payment of $10.25 a share, plus stock valued at about 67 cents each from Compuware’s stake in its Covisint Corp. subsidiary that was spun off last year.

The total consideration represents a 19 percent premium to Compuware’s average price in the 20 trading days through Aug. 29 and an 8 percent premium to the average level for the year.

Analysts including Derrick Wood of Susquehanna were estimating Compuware shares would rise to about $11 in the next 12 months had it not sold itself.

Today, Compuware shares rose 0.2 percent to $10.62 at 10:28 a.m. New York time.

“This offer is pretty close to our fair-value assumption,” Wood, who’s based in San Francisco, said yesterday. “Based on how long this has been vetted, and that both the board and Elliott are fully supporting the transaction, we think this is the best offer shareholders are going to get.”

Activist Push

Compuware was put in play when Elliott, a New York-based hedge fund founded by Paul Singer, disclosed an activist stake in November 2012 and then made a proposal a month later to acquire the rest of the company for $11 a share. Compuware’s board turned down the bid and instead focused on cutting costs, divesting units and initiating a dividend. The share price began to deflate as expectations for a takeover diminished.

Bain Capital LLC and Golden Gate Capital Corp., which bought Compuware’s peer BMC Software Inc. last year, had also explored a deal for Compuware but decided not to bid, people familiar with the situation said earlier this year. Compuware drew a second look from Thoma Bravo and Vista Equity Partners LLC earlier this year, the people said.

Deal Gains

Even though it never turned into the heated bidding war some investors may have hoped to see, those who followed Elliott into the stock almost two years ago will have pocketed gains of about 25 percent. That’s before accounting for dividends, which Compuware began paying last year in response to Elliott’s activism. It has since distributed 62.5 cents for each share held.

Unlike this year’s other takeover targets such as OpenTable Inc. and WhatsApp Inc., Compuware’s revenue was flat in the fiscal year that ended March 31. The company generates revenue from license and maintenance fees for software used by companies such as Best Buy Co., LinkedIn Corp. and Macy’s Inc.

“For the last year-and-a-half or so they’ve been undergoing a transformation to streamline the business,” Materne of Evercore said. “There’s been a lot of moving parts, which I think is probably part of the reason a transaction like this has taken so long.”

As for selling now, he said “it’s easier to make these changes as a private company.”

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