Compuware to be sold to Houston firm also owned by private-equity

Detroit-based Compuware, once the largest tech company in Michigan, is being sold to a bigger, competing software firm in Texas that is also owned by a private-equity firm.

The Houston-based firm BMC announced Monday it has a tentative deal to buy Compuware. The sale is expected to close "in the coming months" and terms were not disclosed.

Compuware has been owned since December 2014 by private-equity firm Thoma Bravo, which acquired it in a $2.4-billion leveraged buyout.

Compuware, a mainframe software services company, no longer discloses its employee head count, but between 500 and 1,000 employees are believed to work there now. The company had as many as 15,000 employees around the globe at its 2000 peak.

The sale of Compuware is not a surprise because private-equity firms typically sell their acquisition targets within five or so years after making a lot of changes and cost-cutting moves, including layoffs.

More: Report: Compuware's private equity owner exploring sale

BMC is owned by a different private-equity firm called KKR. KKR bought BMC in an October 2018 deal reportedly valued at $8.5 billion. Previously, BMC had been owned by two private-equity firms, Bain Capital and Golden Gate Capital, which bought the Houston company for $6.9 billion in 2013.

A news release Monday said the Compuware purchase will "modernize the mainframe industry."

A BMC representative declined an interview Monday and did not say whether the company plans any layoffs or relocations of Compuware employees. The representative also didn't comment on whether the deal will add a significant debt load to Compuware, which often happens to the acquisition targets of private-equity deals.

A Compuware representative declined comment.

“We are proud to have partnered with Compuware over the past five-and-a-half years ... during which time the company has become a leading innovator in the mainframe software market," Seth Boro, managing partner at Thoma Bravo, said in a news release.

Erik Gordon, a professor at the University of Michigan’s Ross School of Business, said the sale makes sense for Compuware's current owner.

When it bought Compuware, the company had declined into chronic underperformance, Gordon said. "The new owner changed management and built the company into an attractive acquisition target. When the happy talk is over, Detroit is likely to see job losses.

"It is a long time since Compuware led the charge into downtown Detroit," he added. "Years of weak management drove it into the arms of a PE firm that wasn’t afraid to make big changes and has none of the loyalty Peter Karmanos had to the city."

Started in 1973, Compuware was closely associated with its cofounder, Karmanos, who relocated the company from Farmington Hills to downtown Detroit in 2003.

Compuware constructed its Detroit headquarters building near Campus Martius at a cost of $350 million, which was far more than what the building sold for a decade later. Compuware was the first major business to move from the suburbs to downtown Detroit in the 2000s, preceding the later arrival of Quicken Loans.

Compuware's revenue gradually declined and its employee headcount fell.

The company's 2014 sale to Thoma Bravo came in the wake of pressure from activist hedge fund Elliott Management, which became Compuware's largest shareholder in late 2012 and early 2013. The hedge fund sought cost cuts, staff reductions and a shuffle of board members.

There was speculation in spring 2013 that BMC's then-owners, Bain Capital and Golden Gate Capital, were considering buying Compuware to merge it with BMC. But that deal never happened.

Karmanos has had no involvement with Compuware since the Thoma Bravo sale. After leaving, Karmanos went on to found a new company called MadDog Technology.

One of Thoma Bravo's first acts was to split Compuware by spinning off its Massachusetts-based Dynatrace software division to be a separate company again.

On Monday, Compuware CEO Chris O’Malley praised the pending sale to BMC.

"Without a doubt, a combined BMC and Compuware is the best, brightest, and most collaborative (partnership) for a new generation of mainframe stewards," he said in the news release.

Contact JC Reindl at 313-222-6631 or jcreindl@freepress.com. Follow him on Twitter @jcreindl. Read more on business and sign up for our business newsletter.