Those who have been following the news around Qlik (the company) lately have probably noticed that something’s been stirring the past few months. It started in March with activist hedge fund Elliott Management disclosed that it had bought a significant stake in the company. Later that month, Elliott raised its share even further and began pushing for a sale of the company. Potential buyers that were named at that time were IBM or Oracle, neither of which seem like attractive alternatives to me.
It became clear to me that a sale was at least considered as an option by Qlik when I saw the updated the severance packages for tier 1 to 3 executives on Qlik’s Investor Relations page on April 1. Meanwhile, rumors about a potential sale were everywhere. Rumors are just rumors of course, but where there’s smoke…
Then things got quiet for a while, until June 1, when the news appeared that private equity firm Thoma Bravo had submitted a 2.8 billion USD bid on Qlik. And today, June 2, things came to a conclusion when it was announced that Thoma Bravo has acquired Qlik for 3 billion USD.
Of course, for Qlik customers, partners and us developers that raises some questions, and maybe even concerns. I decided to put some of my thoughts in this blog post.
A Private Equity company?
Private Equity companies, aren’t that those predatory companies that purchase a company with borrowed money, pump it full of debt, aggressively cut costs and sell off the wringed out carcass once every last bit of profit has been squeezed out of it? At first glance that looks like a fate worse than Oracle!
Researching Thoma Bravo a little bit more however, they seem (at least at first glance) to be a reputable firm that pursues a “buy and build” strategy with their acquisitions. Looking at some of the earlier acquisitions they’ve sold, such as InfoVista, Vision Solutions, Sirius Computer Solutions and TripWire, the common theme seems to be that those companies left in better shape (financially) than they came in. Increased revenues, higher earnings and growth through organic growth and acquisitions seem to be prevalent in all these cases.
Of course, finances are all fine, but if a company delivers bad products or services, customer service or is a toxic hellhole to work in then that would leave many of the non-financial stakeholders extremely dissatisfied.
As I am unfamiliar with any of the companies listed, I decided to check them out on Glassdoor and see how their employees perceive them. (experiences from customers are harder to find, if you have any I’d be very interested in them)
Taking Qlik and its 4.0 stars rating as a baseline (and checking out some of my own previous employers and clients) I looked up reviews for InfoVista (3.2 stars), Vision Solutions (3.5 stars), Sirius Computer Solutions (3.2 stars) and TripWire (3.7 stars). Not bad, but not great either. Overall a little below the current reviews for Qlik, but pretty much in line with some of the places I have worked.
Reading the actual reviews, you’ll find some mixed opinions, as you probably will with any employer. Some of them, like the one below, specifically mention Thoma Bravo.
Of course, these sort of reviews can seem somewhat worrying, but there are also many positive reviews that balance things out. It might just be negativity bias, so for now I will keep an optimistic attitude. Things at Qlik are going to change (see the next point), but probably not in a dramatic “let’s gut this company and toss it aside” fashion.
Where are they going to cut costs?
One of the areas where I do expect changes is in Qlik’s cost structure. While Qlik makes extremely nice software, they haven’t exactly been profitable in the past few years. In fact, if you look at their yearly results, their losses are increasing. This isn’t due to lack of revenue, that is still growing every year. It’s just that the costs of those revenues are growing even faster.
Take a look at the full year of 2015 compared to 2014.
In this statement, you can clearly see that while the total revenue has increased 10%, the costs of that revenue have risen 20%. The operating expenses are a little better, but combined overall, operationally Qlik still spends $1.0025 for every $1 of revenue. That might seem like a small difference, but when you’re talking about millions of Dollars that adds up to significant numbers.
Some other interesting things to notice are that Qlik is losing serious money on their Professional Services (giving away free consulting?) and that increases in R&D do not seem to keep up with the increase in revenue.
So, where are the cost cuts going to be? It can’t be R&D, in my opinion, if Qlik wants to stay competitive they should probably even increase R&D spending. General & Administrative seems like a good candidate. This is currently at roughly 20% of operating expenses. Looking at my own company (and I know you can’t really compare the two, but I will anyway) 10% seems much more reasonable.
The other obvious candidate is Sales and Marketing. Qlik spends 65% of their operating expenses on this! Of course, they are in the process of a shift from QlikView to Sense, and have to position this well in the market. On the other hand, you have to wonder how efficiently this budget is being spent. Spending $1.06 for every $1 of license revenue (or $0.62 if you include maintenance, but lets assume most of the effort goes into new sales) seems like a losing proposition to me.
Bottom line is, Qlik will have to greatly increase their operational efficiency, and this probably means doing more with less. Articles like these give me the impression that Thoma Bravo might be able to help turn this around.
Which brings me to my final question (to which I already found the answer, but will include nonetheless).
Will the current management team stay on?
On their website, Thoma Bravo seems to imply that they work with the existing management of the companies they acquire:
The press release also states that they will stay on:
For the appearance of ‘business as usual’ I think this is a good move. It wouldn’t surprise me if we start seeing some gradual changes after Q3 (when this deal takes effect) though.
Given that something was going to happen, I believe that the sale to Thoma Bravo was probably the best possible outcome. They seem to have a good track record of not only turning the finances of their acquisitions around, but also growing these companies and seem to look out for their long term health. Qlik going private gives them the opportunity to build out the company, and the products, without having to kowtow to the short term interests of investors. I am (cautiously) optimistic about Qlik’s future, time will tell how it works out.
What are your thoughts about all of this? I’d be very interested in hearing them. And yes, the next post will be about techy stuff again 😉
Update June 3rd: it looks like not everyone was happy with the $30.50 bid per share and that a class action lawsuit is in the making. Will that go anywhere?