10:25 AM

Scenic Vista: Tibbr - The $10bn Jewel In The $4.3bn Tibco Sale

Vivek 1

Tibco CEO and Founder Vivek Ranadivé. [Tibco is a founding sponsor and a former sponsor of Silicon Valley Watcher.]

Tibco Software agreed to be taken private in a $4.3 billion sale to Vista Equity Partners, a private equity firm specializing in software firms.

Tibco is one of Silicon Valley's oldest tech companies and its technologies are used to power real-time data systems such as those used by banks, stock exchanges, and news networks -- Reuters once owned 49% of the company. 

Michael Calia, reporting for the Wall Street Journal, writes that Tibco had spent much of the summer examining its options before deciding on this strategy:

 David West, a member of the company's committee in charge of exploring options, said in a news release. "Ultimately, the board concluded that the sale alternative was the best alternative, and that Vista's offer to acquire Tibco is the best way to maximize value for our shareholders." 

Tibco Software to be Taken Private for $4 Billion - WSJ

The Wall Street Journal reported that the $24 a share offer represented a 23% premium compared with Friday's close of market.

Foremski's Take: Tibco's technologies aren't easy to explain but they are extremely important in powering the infrastructure of heavy-duty IT systems supporting critical business processes and are used by many of the world's largest corporations.

Tibco has been transitioning its revenues towards a subscription based model and such transitions take time and cause volatility in revenues. By becoming a private company Tibco's management can focus on long term goals. Dell chose a similar strategy.

Vista Equity clearly sees the value in Tibco's IT technologies. Its domain expertise can help Tibco complete a reorganization started last year that shook up senior management and aligned its products and services to focus on IT technologies for hybrid cloud and owned data centers. These will need real-time messaging capabilities across a dynamic IT landscape, and fast enough to respond to billions of daily business transactions and interactions.

Every large organization is building what is essentially a corporate operating system that in its ideal form will give it the agility to create and exploit business opportunities better than anyone else. Tibco's technologies are key to such a future.

However, the complexity of such systems combined with the conservative nature of IT departments, means deals take a long time to close.  Revenues are lumpy and hard to forecast. By becoming a private company Tibco can avert the potential for wide swings in its share price, which harms staff morale, and alarms customers and shareholders.

Once Tibco's pipeline is refilled and revenues are steady and predictable, Vista can take Tibco public. There has always been a very healthy IPO market for IT companies with large revenues.

Wall Street blindness...

But there's a potential to make a lot more money, and a lot more quickly, too. Vista is not blind to the hidden jewel in Tibco: the Tibbr social network which has more than 6.5 million paying enterprise users. Its success has been extraordinary under senior executive Ram Menon but its value hasn't been reflected in Tibco's share price. It's been a point of frustration within Tibco.  Microsoft paid $1.2 billion for Yammer, a similar service, with about 800K users for $1.2 billion in 2012.

Tibbr could be worth as much as $10 billion on a Yammer per user valuation -- more than double Tibco's sales price. That's a scenic vista for this specialist private equity firm.

Update: Maybe the pickings are a bit too rich.  The Dallas based securities litigation firm Powers Taylor and the former SEC attorney Willie Briscoe, announced an investigation into the Tibco board's decision making, to make sure shareholders got the best deal.

Tibco runs a very tight ship on governance. The low share price is the result of too few Wall Street analysts that understand Tibco's business and its markets. A specialist private equity group such as Vista can unlock the value of Tibbr, and revamp Tibco, and make billions in profits. It's Wall Street's loss.