How a Complex Carveout Led to Dynatrace Disrupting Itself and Then an Entire Industry
Jan 18, 2024
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Thoma Bravo Partner Chip Virnig goes behind the deal with Dynatrace, discussing the complexities of the transaction and the areas of value creation. Former Dynatrace CEO John Van Siclen joins to share his perspective on the growth in enterprise software. The deal became a fascinating case study, borrowing strategies from the Thoma Bravo playbook and deploying them all on the same deal. The podcast explores the acquisition and complex carveout of Dynatrace, the benefits and challenges of carving out a business, the importance of disruption in the technology industry, and Dynatrace's remarkable growth from a venture-backed company to a publicly traded firm.
The Dynatrace deal showcased the power of disruptive innovation and successful carve-out strategies in the technology industry.
Toma Bravo's partnership with Dynatrace and commitment to backing existing management drove the successful transition to a cloud-based platform and multi-billion dollar growth.
Deep dives
The Intricate Deal: Dynatrace Acquisition by Toma Bravo
The podcast episode discusses the complex Dynatrace deal, which involved a carve out, take private, subsequent IPO, and the sale of a million-square-foot building. Toma Bravo partner Chip Burning was unwavering in his belief in the value of Dynatrace, a leading provider of modern cloud infrastructure and application observability solutions. Despite initial challenges and declining revenue streams, Toma Bravo and the Dynatrace team successfully navigated the transition to a cloud-based platform. They disrupted themselves, carved out the mainframe business, and merged the APM unit with an existing portfolio company. The successful IPO and growth of Dynatrace showcases Toma Bravo's investment judgment, the symbiotic relationship between high margins and high growth, and the implementation of various operating levers.
The Power of Disruption and Alignment
Toma Bravo recognized early on the disruptive potential of cloud infrastructure and sought a partner that aligned with their vision for digital transformation. They found Dynatrace, a company with impressive culture, products, and leadership. Despite initial obstacles, Toma Bravo's alignment with Dynatrace's CEO, John Van Sicklin, and their commitment to betting on his leadership drove the success of the deal. Together, they carved out the business, established a new platform, and navigated the transition to the cloud. Their ability to disrupt themselves and embrace innovation allowed Dynatrace to become a multi-billion dollar SaaS company.
The Journey of Transformation and Growth
The Dynatrace investment showcased the power of transformation and growth. Toma Bravo's approach involved cutting costs, streamlining operations, and refocusing resources to build a profitable foundation for the company. They reinvented the product lines as modules on a new cloud-first platform, leading to revenue growth and expansion in the enterprise market. The successful transition to a subscription-based model and the launch of a next-gen offering further drove the company's trajectory. By converting declining revenue streams to the new platform, Dynatrace achieved remarkable growth and ultimately went public at a market cap of around $4.5 billion.
Lessons Learned and Lasting Impact
The Dynatrace case study provides valuable lessons for the technology industry. The ability to disrupt oneself, continually innovate, and align with market trends is crucial for sustained success. Toma Bravo's support, partnership, and focus on backing existing management were instrumental in driving the growth of Dynatrace. The case study exemplifies Toma Bravo's investment strategy, leveraging operating levers, building value, and transforming businesses for profitable growth. The story of Dynatrace's journey from a venture-backed company to a multi-billion dollar public company serves as a testament to the lasting impact of strategic vision, commitment, and strong partnership.
Thoma Bravo Partner Chip Virnig goes behind the deal with Dynatrace: how it started, the complexities of the transaction, and the areas of value creation the Thoma Bravo team focused on throughout the partnership. From the initial carve-out to an IPO that saw Thoma Bravo’s team ringing the bell at the New York Stock Exchange, the Dynatrace deal was never easy. Joining Chip in the studio, former Dynatrace CEO John Van Siclen gives his perspective on the growth in enterprise software as a 40-year industry veteran.
Dynatrace first stood out as a leader in SaaS when the Thoma Bravo team realized the massive potential of cloud infrastructure, and successfully predicted an industry-wide disruptive shift in that direction. The acquisition became a fascinating case study, borrowing multiple strategies from the Thoma Bravo playbook - such as operational improvements on day one, backing existing management, and transforming the business to a SaaS-based model - and deploying them all on the same deal.